Housing Benefit
	 — 
	Question

Baroness Gardner of Parkes: To ask Her Majesty's Government whether they will review eligibility criteria for housing benefit and the amounts available to assess whether the criteria meet public expectations of value for money.

Lord McKenzie of Luton: My Lords, we are currently undertaking a comprehensive review of the housing benefit system jointly with HM Treasury. The review was announced at Budget 2008 and is examining the effectiveness of housing benefit, particularly in promoting work incentives, efficiency and fairness and to ensure that it represents value for money for the taxpayer. The December welfare reform White Paper, Raising Expectations and Increasing Support: Reforming Welfare for the Future, provided an update on this review and signalled our intention to launch a consultation on possible housing benefit reforms early in 2009.

Baroness Gardner of Parkes: My Lords, I thank the Minister for that reply. Certainly, many people are very unhappy to see such high rents; the highest are in Ealing, where just under £150,000 a year is paid for one family, and in Kensington and Chelsea there is that widely publicised rent of £97,500 a year. Although people would like to see help for the homeless, many think that it is ridiculous that the properties that are provided are places that they could not dream of living in themselves, and they are struggling to pay their mortgages. Will the new scheme bring flexibility for local authorities to allow them to use this money with greater discretion and not to have to tell the landlord in advance the maximum that they can pay, which seems absurd?

Lord McKenzie of Luton: My Lords, the noble Baroness makes an important point about making sure that the system produces fairness between those in work, and what those families can afford, and those on benefits. Last October, the Secretary of State announced that the local housing allowance levels will be capped at the five-bedroom rate from next April, so that any new claimants in respect of properties larger than that will have a cap on their benefit. We have already identified that, in a handful of cases at the margins, the scheme provides for very high rents in some parts of London. That is what we are seeking to address.

Baroness Thomas of Winchester: My Lords, does the Minister agree that there are too many disincentives in the housing benefit system for those who want to move from benefits into work, particularly if they want to undertake temporary work or work with fluctuating hours, which may be the only work that is available in the present climate? Does he further agree that it might be a good idea for housing benefit awards to be fixed for certain periods, to ensure that entitlement for that person, so that they are not put off taking a temporary job or one with erratic hours?

Lord McKenzie of Luton: My Lords, one of the purposes of the review is to look at issues around work incentives and work disincentives. There is always a balance in these things between making sure that support is properly targeted at those people who need it and not extending that support up the income chain to increase the area over which it might operate as a disincentive.

Lord Best: My Lords, does the Minister agree that the problems of high rents and high benefits not only apply in the rather extreme cases that the noble Baroness, Lady Gardner of Parkes, mentioned, but more generally mean that people have work disincentives, as we have heard? Would it not be better—I hope that the Minister can assure us that the review will take this into account—to use some of the same money to acquire properties, so that housing associations, charities and arm's-length council organisations can rent at lower rates, which would mean that the housing benefit paid was less and work incentives were much greater? For example, Westminster City Council has been buying back some of the properties sold under the right to buy and letting them at rents that are within the reach of people, rather than at rents that are so high that dependency on housing benefit and staying out of work are inevitable.

Lord McKenzie of Luton: My Lords, I certainly agree that it is important that councils or RSLs provide a good supply of good-quality housing. Housing benefit is paid to more than 4 million tenants, 23 per cent of whom live in the private rented sector. An increase in the supply of available accommodation, particularly through the public sector, will impact on rents and therefore on housing benefit levels.

Lord Campbell-Savours: My Lords, what is the new central London five-bedroom capped rate?

Lord McKenzie of Luton: My Lords, the rate is set by reference to broad rental market areas. I cannot, off the top of my head, notify my noble friend of the boundaries of those areas in London, but I will follow that up and write to him.

Lord Skelmersdale: My Lords, the Minister mentioned fairness, first, in his primary Answer and, secondly, in answer to the supplementary question from my noble friend Lady Gardner. Can he therefore explain why a pensioner couple can get housing benefit to pay for two bedrooms but the rules of the local housing allowance insist that only one bedroom is allowable?

Lord McKenzie of Luton: My Lords, the criteria by which the local housing allowance is paid—or, indeed, for the previous arrangements that remain for past claimants—look at the accommodation that people need. Under the local housing allowance, it is assumed that a couple would have one bedroom, as is the case for an individual, so I am not quite sure of the proposition that the noble Lord is advancing. He may have identified a difference between how the old system and the new system work.

Lord Northbourne: My Lords, some years ago, housing benefit fraud in this country was estimated to be some £2 billion a year. Has the noble Lord any idea of the estimate today?

Lord McKenzie of Luton: My Lords, if the noble Lord is asking about the level of housing benefit fraud, I can tell him that it has reduced significantly since the peak of 2006. I do not have the detailed figures, but I would be happy to write to him. There has been a lot of focus on reducing fraud as well as increasing the efficiency of the system by working with local authorities.

Lord Whitty: My Lords, does the Minister accept that some of the reasons for the soaring housing benefit bill are the unintended consequences of the rent restructuring programme, which has also had an effect on the disincentive to work, to which the noble Baroness referred? Also, will the review cover the issue of payment to the tenant, rather than payment to the landlord? For a lot of families, in terms of managing their budget, it is actually better to pay the landlord directly, which can also deal with fraud and arrears.

Lord McKenzie of Luton: My Lords, on the last point, the change in the local housing allowance, under which payment was generally made to the tenant, was a very important development. The pathfinders that preceded the introduction of the allowance demonstrated that there was a very high take-up of that allowance. It was part of broadening financial inclusion, as was demonstrated by the take-up of bank accounts by those who availed themselves of that facility. Under the current system, people who are vulnerable can still make arrangements, or arrangements can be made for them by the local authority, for payments to be made directly to the landlord, but overwhelmingly they are made to the tenant, which I believe is a good thing.

Zimbabwe
	 — 
	Question

Lord Blaker: To ask Her Majesty's Government what steps they are taking towards a resolution of the situation in Zimbabwe.

Lord Malloch-Brown: My Lords, we are working with our international partners to encourage a resolution of the crisis. Mugabe's regime continues to stand in the way of political progress. Its failed policies have devastated Zimbabwe's economy and infrastructure. As a result, nearly 6 million people are in need of food aid and cholera has killed some thousands. Our immediate priority is to provide humanitarian assistance to alleviate the suffering of the Zimbabwean people—the innocent victims of these failed policies.

Lord Blaker: My Lords, next week there will be another meeting on Zimbabwe. Considering the damage that the crisis is doing to the region, there was a disgracefully low turnout of Heads of Government at their last Zimbabwe summit in November. Instead of urging Mugabe to halt violent intimidation and accept the will of the people, SADC has so far adopted the feeble line of pressing Tsvangirai to make further concessions. Should we not remind SADC that after the violent June presidential run-off its own observer mission declared that:
	"The elections did not represent the will of the people of Zimbabwe"?

Lord Malloch-Brown: My Lords, I think that the reason for the low SADC turnout was frustration among SADC leaders at the lack of progress. I believe that a number of leaders would entirely agree with the noble Lord's last remark and share his frustration that there is no progress. Yesterday in Harare there was a long meeting between Morgan Tsvangirai and Robert Mugabe, but after 12 hours there was no progress because Mr Mugabe continues to refuse to make concessions.

Baroness D'Souza: My Lords, I think it is generally agreed that people in Zimbabwe are quite desperate. One effective means of getting hard currency to desperate people is via remittances. Does the Minister agree that it might be a good idea to allow Zimbabwean asylum seekers in this country to work, earn and remit?

Lord Malloch-Brown: My Lords, sadly, in this case remittances probably do not work because they are essentially confiscated in large part by the central bank and diverted to sustain the regime. However, I certainly share the noble Baroness's concern about the condition of failed asylum seekers in the UK. Although the Home Secretary has concluded that they cannot be allowed to work for fear of breaching broader precedents, they can and do receive housing and living benefits to ensure that they are not destitute.

Lord Anderson of Swansea: My Lords, my noble friend will recall the NePAD and Gleneagles agreement, which in shorthand meant that developed countries provided aid and in response the African Union provided good governance, which was monitored by a peer-review mechanism. Since then, there has been the stolen election in Zimbabwe in March, the situation is deteriorating daily and the peer-review mechanism has stalled. Does the African Union recognise the damage to potential investment by its failure to act in this respect?

Lord Malloch-Brown: My Lords, perhaps I may correct my noble friend on one point. The peer-review mechanism has not stalled and in fact has contributed significantly to the improvement of governance in many countries. I recently came back from the inauguration of a new President in Ghana, the result of a 50:50 election where the losing side respected the result. However, that makes my noble friend's point even truer, because the great successes of improved governance in Africa are covered up internationally by the disastrous black spot of Zimbabwe.

Lord Avebury: My Lords, does the noble Lord agree that the SADC mediation initiative is virtually dead, apart from a last-minute twitch of the corpse next Monday, either in Botswana or South Africa? In view of that, does he think that there is any possibility that the African Union, at its summit in Addis Ababa, will pick up the suggestion made previously by the Kenyan Prime Minister, Raila Odinga, that the African Union should boycott Mugabe and supervise free, fresh and fair elections?

Lord Malloch-Brown: My Lords, I think that the prospect of the African Union summit is leading to a last flurry of diplomacy. The meeting yesterday in Harare and the SADC summit have taken place in the run-up to the AU one. Last year, the AU said that, if SADC could not fix this, it would want to be part of finding a solution. There is frustration that it has not been more fully involved. I think the AU will want to take a hard look at this. South Africa must remain part of the solution, as must SADC, but the present initiative has essentially shown itself to be exhausted and defeated by the sheer stubbornness of Mr Mugabe.

Lord Howell of Guildford: My Lords, as the old policy of quiet diplomacy fails, the United States Government have in their last days blacklisted a whole range of businesses that are aiding and abetting this revolting regime. Fourteen of those companies are located and based in the United Kingdom. Have we backed up that policy? Have we taken action against those 14 companies?

Lord Malloch-Brown: My Lords, I commend the United States Government for what they have done. They had been waiting to take the sanctions further from what had been the agreed line, which was one of targeting individuals who were part of the regime directly and now extends to a group of companies which are viewed, in part, as financing and sustaining the regime. The United States can act on its own; we need to act within Europe. Discussions are well under way, and although it is not appropriate to discuss individual companies in this House, I hope to bring to good news to the noble Lord before long.

Lord Davies of Coity: My Lords—

Lord St John of Bletso: My Lords, can the Minister comment on reports that arms have been shipped from China into Angola and then airlifted into Zimbabwe?

Lord Malloch-Brown: My Lords, I can comment. Like the noble Lord, I was surprised and disappointed when I saw those reports. We went back to their source, which was the UN experts report on the DRC, which does not actually name China, but somehow it has been added in the reporting. However, China insists that it has not been part of such arms exports to Zimbabwe. We shall continue to track the situation because, in our view, anyone who exports arms to Zimbabwe at this time poses a real threat to regional peace.

Prisoners: Early Release
	 — 
	Question

Baroness Sharples: To ask Her Majesty's Government how many prisoners have been released under the early release scheme.

Lord Bach: My Lords, there are two schemes under which prisoners may be released into the community before they have served half their sentence. The latest published figures show that 147,334 prisoners have been released under the home detention curfew scheme and 44,720 prisoners have been released under the end-of-custody licence scheme.

Baroness Sharples: My Lords, I thank the noble Lord for that reply. How many of the released prisoners are immigrants? I understand that they receive cash to compensate for food and board, but how long is it before they are deported? Is the home detention curfew working well?

Lord Bach: My Lords, foreign nationals in prison who are due for deportation are not eligible for either scheme. If the noble Baroness means such prisoners when she uses the term "immigrant" in this context, the answer is none.

Lord Mayhew of Twysden: My Lords, how can the public be expected to have confidence in the criminal justice system when early release—which used to be called executive release—is no longer a measure resorted to very rarely in an emergency but seems now to be a settled practice?

Lord Bach: My Lords, my right honourable friend the Justice Secretary has said on many occasions that we will end the end-of-custody licence when headroom allows. We are working extremely hard to build new places, with the fastest ever creation of prison spaces. When Ministers judge that it is safe to do so, we will end that scheme. The other scheme, the home detention curfew scheme, plays an important role in managing prison population by reducing overcrowding and, at the same time, we believe, improves the resettlement and rehabilitation opportunities for less serious offenders.

Lord Woolf: My Lords, does the Minister agree that having a policy that will result in an increased population is hardly wise if there are these problems with the existing prison population? The practical result is that the courts are being required to shovel people into prison by the front door and then they are released by the back door.

Lord Bach: My Lords, what the noble and learned Lord says is, of course, right to the extent that overall prison capacity is high at present. There is an obligation for the courts to send to prison those who are dangerous and serious criminals, but we believe that tough community sentences are a proper alternative to prison in many cases.

Lord Corbett of Castle Vale: My Lords, is there any difference in reconviction rates between prisoners released under the two schemes that we are discussing and those released in the normal way?

Lord Bach: My Lords, as I understand it, the figures for reconviction under the home detention curfew scheme are happier than those for prisoners released in the normal way.

Lord Dholakia: My Lords, does the Minister accept that the early release scheme has been fairly successful, apart from occasional hiccups? In the light of that, does he have it in mind to review the parole system to ensure that more people spend sentences in the community rather than in custodial institutions?

Lord Bach: My Lords, it has been successful to the extent that it has reduced the problems with regard to the prison population. On the other hand, it is not entirely a satisfactory scheme, which is, as I said, why my right honourable friend wants to end it as soon as headroom allows. I repeat what I said to the noble and learned Lord, Lord Woolf: where a non-custodial sentence, a tough community sentence, can be imposed, of course we want more of them, but the House must accept that there are people who really have to go to prison.

Lord Graham of Edmonton: My Lords, is the Prison Officers' Association actively involved in discussions prior to those releases?

Lord Bach: My Lords, of course the prison administration in each prison takes these matters very seriously. Before a home detention curfew can be awarded to a prisoner, there will clearly have been many discussions about whether the prisoner is appropriate, and that will include prison officers. As for the end-of-custody licence, provided that the prisoner meets the qualification—that is, that he or she is serving a sentence of more than four months and less than four years, is not imprisoned for serious violence or terrorist offences and is not on the sexual offences register—they will automatically be released up to 18 days before their sentence ends.

Lord Kingsland: My Lords, when my noble and learned friend Lord Mayhew posed his question to the Minister, the Minister responded by saying that the temporary scheme would be finished "when headroom allows". Will the Minister inform the House, as accurately as he can, what he means by the expression "when headroom allows"?

Lord Bach: My Lords, I mean when there are enough new prison places for prisoners to be able to serve the whole of their sentence. I find it hard to understand why we should be attacked for having had systems that allow for prisoners to be released before they are half way into their prison sentences. When the noble Lord's Government were in power, they ensured on four quite separate occasions that the same facilities were available for prisoners. In other words, the prisoners could be released less than half way through their sentences. I cannot think why his party should suddenly have turned against this.

Baroness Sharples: My Lords—

Lord Hunt of Kings Heath: My Lords, to be fair, we are in the 24th minute.

Israel and Palestine: Gaza
	 — 
	Question

Lord Sheikh: To ask Her Majesty's Government what assessment they have made of whether international humanitarian law has been breached in the conflict relating to Gaza.

Lord Malloch-Brown: My Lords, very serious allegations have been made against both Hamas and Israel. We take these very seriously and they must be fully investigated. The Israeli authorities have said that they are investigating specific incidents raised by the aid agencies. We will consider very carefully the results of investigations once they are available. At that stage, the parties and the international community will need to decide on any further action.

Lord Sheikh: My Lords, I thank the Minister for that reply. The people of Gaza have been subjected to collective and indiscriminate punishment by the Israelis, some of whose actions can perhaps be considered inhumane. Israel has used white phosphorus shells, whose use against people is prohibited under the 1980 Geneva Convention, and there may have been incidents whose investigation is likely to find breaches of international humanitarian laws. There have been statements of condemnation—

Noble Lords: Question!

Lord Sheikh: My Lords, will the Government take a lead to facilitate a full and thorough investigation by the United Nations and the Red Cross to determine whether there have been breaches of international laws and to ensure that appropriate remedial action is taken? Will the Minister keep your Lordships' House advised of progress in this regard?

Lord Malloch-Brown: My Lords, let me assure the noble Lord that my right honourable friend the Foreign Secretary has said in another place that we fully support investigations of these allegations. In the first instance, it is a matter for the International Committee of the Red Cross and the United Nations, both of which are on the ground and both of which have the responsibility for collecting evidence of the different incidents that have occurred. It is also the responsibility of the Government of Israel, as a party to the international laws that govern this—particularly the Geneva Conventions—to make an initial investigation. However, there is no doubt that, if these allegations stand up, they will need to be pursued internationally. These are very serious crimes, if they were committed.

Lord Turnberg: My Lords, on the investigations that we are discussing today, will the Minister say whether the acts of Hamas in putting children on the front line—a number of us have seen internet clips of Hamas soldiers dragging children into the front line with them—and in shooting at and hijacking UN relief agency trucks can be examined in as great detail as the alleged acts of Israel?

Lord Malloch-Brown: My Lords, as I said in my Answer, there are allegations against both sides—in the case of Hamas, the use of human shields and the indiscriminate shelling of civilian communities inside Israel—so investigations indeed need to examine both sets of allegations. However, I say again that the Government of Israel have made themselves party to the Geneva Conventions and must therefore expect to be judged by them.

Baroness Northover: My Lords, how can we ensure that any inquiry into alleged abuses of international law is independent, robust, public and able to hold any individuals indicted to account?

Lord Malloch-Brown: My Lords, at this stage we must allow the proper procedures to unfold. The international agencies are now at the stage of collecting evidence and presenting it in an initial inquiry by the Israelis themselves. It is premature to speculate how this will unfold but, as I have said, we on these Benches are absolutely determined to ensure that a proper and independent effort is made to arrive at the truth of what happened.

Lord Hannay of Chiswick: My Lords, does the Minister agree that the unsung heroes of this appalling series of events are the UN humanitarian agencies, in particular UNRWA, which have performed their tasks under appalling conditions? Are the Israeli Government co-operating with the UN inquiries into these incidents and the matter of white phosphorous or are they blocking them as they have so often done in the past?

Lord Malloch-Brown: My Lords, I agree with the noble Lord that the men and women of UNRWA and all the humanitarian agencies, including the Red Cross and others, who have been involved during these terrible days in Gaza deserve our greatest respect and support for the heroic work that they have undertaken. On his second point, it is simply too soon to know. There is an obligation on Israel to co-operate. We very much hope that it will live up to that obligation.

Lord Clinton-Davis: My Lords—

The Lord Bishop of Chelmsford: My Lords, does the Minister accept that, while obviously we need an independent and thorough investigation into all allegations of abuses, on this day especially the most important thing is that the international community bends its energies unreservedly to resolving the issues that lie behind this crisis?

Lord Malloch-Brown: My Lords, I completely agree with what the right reverend Prelate has just said. It is enormously important that we do not get distracted from the core issue, which is to move beyond this ceasefire to a lasting peace. That is a huge hill to climb. It has defeated peacemakers from around the world over many decades. However, now more than ever we have to recommit to the objective of preventing further descent yet again into these terrible periodic bouts of violence in the region.

Lord Clinton-Davis: My Lords, does my noble friend agree—

Baroness Tonge: My Lords—

Lord Hunt of Kings Heath: My Lords, my noble friend has been trying to get in.

Lord Clinton-Davis: My Lords, enlarging on what the Minister has just said, may I ask what the Government are doing to ensure that the fragile peace can be converted into a durable settlement?

Lord Malloch-Brown: My Lords, let me reassure my noble friend that we are doing as much as we can. The Prime Minister promised naval support to prevent arms smuggling and support for mine clearance. He has committed additional humanitarian assistance and he went at 24 hours' notice to Egypt and Israel on Sunday to put British support behind a lasting agreement. Again, we should not fool ourselves: it is easier in the Middle East to achieve a ceasefire, difficult though that is, than to tackle the long-standing roots behind a crisis of this kind. But we must do the latter.

Baroness Tonge: My Lords—

Lord Hunt of Kings Heath: My Lords, we have run out of time, I am afraid.

Banking Bill
	 — 
	Committee (4th Day)

Clause 63: General continuity obligation: property transfers
	Amendment 106
	 Moved by Baroness Noakes
	106: Clause 63, page 31, line 14, after "provide" insert "for a period not exceeding 2 years"

Baroness Noakes: Amendment 106 deals with the continuity obligations which can be imposed. Under Clause 63(2), the residual bank and each group company have to provide whatever services and facilities are required for the business of the transferee. There is no time limit or other restriction in this clause. The British Bankers' Association believes that a maximum time limit should be placed on this. The residual bank and its group companies have no right of appeal against a notice that they must provide services, so it is important to ensure that the obligation placed on them is proportionate. The BBA has suggested a period of 12 months on the basis that this is the normal notice period for service contracts entered into commercially. My own amendment is rather more modest because it sets a maximum of two years.
	It ought to be possible for the transferee to make its own arrangements for whatever services or facilities it requires. In practice, 12 months should be adequate but, at two years, my amendment provides plenty of time to deal with things like IT systems, property and anything else that is likely to be needed. It seems grossly unfair to the residual bank to make it suffer, perhaps indefinitely, by providing services to the transferee. It is not a question of money, although adequate compensation is necessary, as we shall debate on the next group of amendments. A residual bank needs to concentrate on its own remaining business and not be sidetracked into being a service provider to a transferee which may even be a competitor. I beg to move.

Lord Myners: This amendment relates to continuity obligations. It may help if I first provide a brief explanation of how these obligations are intended to work in relation to banking groups. Major financial firms do not tend to operate as single legal persons. Instead they are organised as groups, generally with a single, ultimate parent company and any number of subsidiaries which may be organised into distinct sub-groups. Corporate entities within these groups are connected through shareholdings, but are likely to be connected in other ways as well. Banking groups may have hundreds of group companies. Noble Lords should note that Northern Rock was an unusually simple bank in terms of corporate structure in that the holding company was the deposit-taker and the bank had very few subsidiaries.
	There is no general rule about how banks organise themselves, and in particular about where they locate their systems. Some banks' systems are split between subsidiaries; others are all located in the holding company or a particular subsidiary. For example, the holding company may employ all the group's employees or a specialist subsidiary may provide IT services to the whole group. As currently drafted, the scope of the special resolution regime is restricted to banks; that is, institutions having permission to accept deposits under the Financial Services and Markets Act 2000. Noble Lords will be aware that I have tabled amendments to extend the scope of the temporary public ownership tool to bank holding companies. But the starting point will be to take action with respect to a bank, if that is practical. Continuity obligations enhance the likelihood of this being possible.
	Clauses 63 to 70 provide for these continuity obligations. In particular, the clauses include powers to place general and special continuity obligations following a transfer upon group companies of the failing bank. These obligations will be restricted to ensuring that necessary services and facilities continue to be provided to the business that has been transferred. A general continuity obligation arises following a transfer automatically, by operation of law. The intention is that it would be replaced with special and specific obligations as soon as the authorities can determine the precise nature of the services or facilities required. The special obligation gives the authorities powers to create, modify or cancel contracts between a transferee and group companies. Where the transfer involves a property transfer, such that a residual bank is left behind as a distinct corporate entity, the special continuity obligation also extends to the residual bank. But the power is only exercisable in relation to the services and facilities required to operate the banking business effectively.
	Let me say something about how the continuity obligations might operate in practice. A transfer of banking business may need to be made on an urgent basis. In this situation, it may not be possible specifically to identify the precise nature of the services and facilities that a bank receives from group companies. Group structures tend to be highly complex, and if there are hundreds of subsidiaries, it may take time to understand the precise nature of all the intra-group arrangements. Hence, on day one a general obligation would arise requiring group companies to provide such services and facilities as are needed to operate the banking business effectively. Then, in due course, and once the nature of the required services could be properly worked out, the power to impose special obligations could be exercised. The Government consider that reasonable consideration should be paid to service providers for any service or facility that they provide to a bank. Through Clause 69, the Bill provides the Treasury with a power to provide further details in secondary legislation on how the authorities will determine this reasonable consideration.
	In the amendment, the noble Baroness, Lady Noakes, proposes that there should be a two-year limit on a general continuity obligation. I entirely agree with the sentiment of the amendment. The authorities shall work to ensure that a general continuity obligation is replaced with a special continuity obligation as soon as possible. It is the intention of the authorities that a continuity obligation will be in place only until it is feasible to arrange for servicing arrangements to be separated or replicated so that the group of companies and the transferee may operate on a stand-alone basis.
	However, I do not believe it is advantageous to set out a time constraint on the face of the Bill. In general, the Government consider that it is not desirable to set out explicit time limits on the face of the Bill, primarily for reasons concerned with flexibility, as the noble Baroness cited when discussing previous amendments. We believe that it is important to have the flexibility to respond on a case-by-case basis. As I have described it is the Government's intention that a general continuity obligation would be replaced by a special continuity obligation as soon as is practicable. I hope the fact that the Government have set out detailed provisions on the face of the Bill for such special continuity obligations makes clear the intention to use them.
	I also remind the Committee that the authorities must have regard to the special resolution objectives in their actions under the special resolution regime and ensure that their actions are proportionate. Therefore I hope that the noble Baroness will feel able to withdraw her amendment.

Viscount Eccles: I was not quite clear about the Minister's reasoning for the present state of the law not being sufficient for the purpose.

Lord Myners: It is appropriate for the avoidance of doubt that the continuity obligation and its durability are clear. In earlier discussions your Lordships' House emphasised the importance of continuity of service. We have an absolute goal to ensure that where the special resolution is used, continuity of service to the customers of banks is maintained. We wish to avoid there being any doubt at all about a bank's ability to continue to receive the necessary support from other group companies on which it has depended.
	That said, I repeat that I am entirely aligned with the sentiment expressed by the noble Baroness when she was speaking to her amendment. However, I hope that the provisions we have made and the comments I have addressed to the Committee will provide the necessary comfort to her.

Viscount Eccles: Does the Minister think that the newco—that is, the company with the assets transferred into it—has a duty towards the resco in respect of continuity?

Lord Myners: The company which the noble Viscount refers to as the newco—the transferee—would have certain duties of care to the transferor, and those duties are captured by the clauses on continuing relationships and the reasonableness of the price paid. This is certainly not designed to allow the transferee in any way to abuse the transferor. There is a duty, but it is not a legislative duty beyond the one relating to reasonable consideration for services provided. There is a duty, but it is not a legislative duty beyond the one related to reasonable consideration for services provided.

Baroness Noakes: When the Minister spoke I realised that I had tabled my amendment under the wrong clause; it should have been in Clause 64, not Clause 63. I wonder whether the Minister might like to answer this question. He spoke in terms of a general continuity obligation not lasting more than two years. I had meant to draft provision for a specific continuity obligation lasting for not more than two years. The point is that the residual organisation should not be put in the position of being a service provider to the transferee for ever and a day. I wanted to focus on that. Perhaps the Minister can answer that and possibly save me from having to bring this back on Report.

Lord Myners: I shall seek to answer the noble Baroness's point. I think that the principles I articulated continue to apply and be relevant. I find it difficult to envisage a circumstance in which a continuing continuity obligation, be it general or specific, is likely to need to run for more than two years. However, one cannot rule out such a possibility when it relates to very complex IT systems that support retail banking and are at times housed in another part of the larger organisation. I urge the noble Baroness to take comfort from the fact that I share her view that there should be an appropriate and early separation, but not to the point that it places at risk the ability of the transferee—or newco, as the noble Viscount, Lord Eccles, described the company.

Lord Higgins: Are not some of these IT systems likely to be indivisible? In that case, may there not be a need for a continuing continuity arrangement if the system is to work?

Lord Myners: That may well be the case. As I said yesterday, I was a director of Coutts. I was also a director of NatWest, but well before it became part of the Royal Bank of Scotland. The IT systems at NatWest at that time seemed to have been written in the Stone Age and our ability to make any meaningful changes to the customer service provision was constantly obstructed by what was known as BOLT—I do not know what that stands for. The noble Lord is right that legacy systems supporting the sheer volume of data which a large bank requires are not simply lifted out. In the new world of smaller computers and systems it is probably not quite as difficult as it was for many systems, but it is precisely for that reason that we think it would be wrong to put a time limit into legislation.

Baroness Noakes: I thank the Minister for explaining what he had in mind, and I am grateful for his opinion that the arrangement should not last a long time. On the point about legacy systems raised by my noble friend Lord Higgins, we would not expect them to have to last a long time, simply because people today have to survive dealing with their own systems. I suspect that it would be unsatisfactory for a transferee to be dependent on its former home to provide its services over a long time. The natural instinct should be to drive away. I am grateful for what the Minister said. As I mentioned, the British Bankers' Association is exercised about this. I shall ask it to read what the Minister said in Hansard and advise me whether it continues to have a concern.
	Amendment 106 withdrawn.
	Amendment 107
	 Moved by Baroness Noakes
	107: Clause 63, page 31, line 21, leave out "reasonable consideration" and insert "such consideration as would be expected in arrangements concluded between parties dealing at arm's length"

Baroness Noakes: Still dealing with the continuity obligations, we now move to what the transferee has to pay for them—or, to put it the other way round, what the transferor can receive for them. I shall speak to the seven other amendments in the group as well. They concern the arrangements for remuneration in respect of the provision of continuity services. In Committee in another place, the Government moved amendments to replace the original concept of "market rate" with one of "reasonable consideration". I accept that "market rate" caused some difficulties because it might allow monopolistic pricing. Unfortunately, "reasonable consideration" has no defined meaning in commercial terms and, as drafted, leaves rather too much to the opinion of the Treasury, using its power under Clause 69, to which the Minister referred earlier, to determine what amounts to reasonable consideration. The Treasury has no natural or indeed obvious competence in the pricing of services reasonably.
	My amendments address three issues: whether "reasonable consideration" is the right term; what obligations are on the Treasury and the bank to achieve reasonable consideration and other terms; and an appeal mechanism in case of disagreement as to the consideration or other terms.
	Amendments 107, 109, 110 and 112 replace "reasonable consideration" with,
	"such consideration as would be expected in arrangements concluded between parties dealing at arm's length".
	That phrase would apply to Clauses 63, 64, 66 and 67. This formulation is used in those clauses for determining the other provisions in the arrangements for continuity services. It seems to me that if it is good enough for determining general terms and conditions, the formulation would be right and consistent for determining consideration.
	Amendments 108 and 111 would delete the words,
	"aim, so far as is reasonably practicable",
	from Clauses 64(3) and 67(3). That would require the Bank of England or the Treasury actually to achieve both "reasonable consideration" and other arm's-length terms. The question posed by these amendments is: why should there be any issue of reasonable practicability? The service providers want assurance that they will be dealt with on arm's-length terms and at a proper price. Why should the authorities have any let-out from achieving that? What, in practice, is targeted by this caveat wording of,
	"so far as is reasonably practicable"?
	Lastly, Amendments 113 and 114 replace the order-making power in subsection (1) of Clause 69 with a requirement for the Treasury to appoint someone independent to determine terms or price, whatever formulation is used, in the event of disagreement. I should probably have deleted subsection (2) as well, for completeness, but I do not think that that matters for the purposes of today's debate.
	There is a theme running through these clauses that the residual bank and the group companies will do what they are told on the terms they are given and for monetary consideration that the Treasury determines. These residual operations, and certainly other group companies, may well be viable businesses, with their own priorities, and it is important that they are treated fairly. These amendments are intended to be a contribution to that, and I beg to move.

Lord Myners: It is worth bearing in mind that the bank described as the residual bank is part of a failed organisation. When we talk about the fairness of the arrangements between the bank that has gone into the special resolution process—the NewCo, as referred to by the noble Viscount, Lord Eccles, and the residual bank or transfer, as referred to by the noble Baroness, Lady Noakes—we are talking about what was, prior to that, a single organisation with a single set of shareholders with interests in the totality of the organisation.
	I shall speak first to Amendments 107, 109, 110 and 112. The noble Baroness has tabled a series of amendments which seek to introduce the concept of arm's-length terms into the continuity clauses. The amendments provide that the relevant authority must ensure that consideration be paid as would be expected in arrangements concluded between parties dealing at arm's length.
	If a former group company provides a service—for example, IT support, as we mentioned earlier—to a deposit-taker that has been transferred into temporary public ownership, the continuity provision places the former group under obligations to continue to provide the service. However, it is of course appropriate that the group company receives reasonable consideration for the provision of that service.
	In normal circumstances, the forces of supply and demand—the usual commercial forces—would work to determine consideration, as would be expected in arrangements concluded between parties dealing at arm's length. If a company purchased a bank from the group, it would seek to negotiate terms for the provision of services to the bank, or put in place other arrangements. For example, an IT company might stipulate that it be allowed to shut down systems for an hour each night to carry out maintenance. If the deposit-taker did not accept this provision, the bank would take its business elsewhere or arrange the service to be provided by another company. However, clearly, the authorities would not have opportunity to enter a process of negotiation, or to seek alternative arrangements at the time of the transfer under the SRR stabilisation powers.
	Once the business is transferred, it is essential that the services continue to be provided to ensure that the deposit-taker remains operational from hour one of day one. This is necessary, for example, to ensure that depositors retain access to their accounts. Therefore, the transferee would have but one choice: to continue with the same services as pre-transfer. In addition, bank systems are often highly bespoke to the particular business that they support, so it is highly unlikely that a transferee would be able to find and organise an alternative supplier for essential services at very short notice.
	Given that the deposit-taker would not be able to take advantage of substitute service providers, a former group company that supplies services is likely to be in a position of relative power and could seek to charge "ransom" rates. This is because the deposit-taker would have no choice but to accept the terms of the provider, given the absence of alternatives. For this reason, the Government consider that the phrase "reasonable consideration" strikes the right balance between the consideration that a service provider should rightfully receive and mitigating the risk of "ransom" conditions being imposed. Clause 69 provides that the Treasury may by order specify matters which are to be or are not to be considered in determining what amounts to reasonable consideration. I hope that I have suitably justified the Government's position on this issue.
	Amendments 108 and 111 seek to remove the phrase "so far as is reasonably practicable" from subsection (3) of the relevant clauses. This subsection relates to specific continuity obligations for share and property transfers. It imposes a duty on the relevant authority to aim to preserve or include provision for reasonable consideration, and other provisions that would be expected in arrangements concluded on an arm's-length basis. The amendment would remove the qualification to that duty; namely, that the duty does not arise where it would not be reasonably practicable. Of course, it is the authorities' intention to provide such things in all situations. However, there may be circumstances which result in it not being practicable. This reflects the fact that the continuity obligations have not been, and cannot be, concluded in the manner of ordinary contractual arrangements. A bank will normally make provision for its servicing arrangements in a deliberate and planned way, anticipating the future needs it will have for required services and facilities.
	By contrast, the continuity obligations are designed to ensure that required services and facilities continue to be provided, following a transfer compelled by statute. In such circumstances, it may not be reasonably practicable to provide for the terms of such contracts to be on wholly commercial terms because there may not be any legitimate commercial analogue for the circumstances of the banking business following the transfer. I should also make it clear that the phrase "so far as is reasonably practicable" does not provide the relevant authority with a right to ignore commercial terms.
	I shall now turn to Amendments 113 and 114, which seek to change the nature of Clause 69, whose purpose is to provide that the Treasury may by order specify matters which are to be, or are not to be, considered in determining what amounts to "reasonable consideration", or "arm's-length" provisions. The order is intended to be a standing piece of secondary legislation, not bespoke for a particular resolution. The purpose is to set out provisions which would not be suitable for primary legislation but which would aid clarity about how the Treasury may seek to determine what amounts to reasonable consideration or arm's-length provisions.
	Amendments 113 and 114 change subsection (1) of the clause so that the Treasury may appoint a person to determine what amounts to reasonable consideration in the event of dispute, instead of providing for the matters that are or are not to be considered in assessing what amounts to reasonable consideration. It is true that other parts of the Bill, most notably in respect to the compensation clauses, provide for independent valuation and for independent valuers to be appointed. However, the Government consider that the circumstances in which compensation takes place are different from the environment of a continuity obligation.
	The existing power is an order-making power which allows the Treasury to specify matters which may be taken into account in assessing the consideration to be paid. The purpose is to provide commercial certainty as to the factors that may be taken into account and to ensure that a ransom is not paid. Any determination as to the consideration paid is, of course, subject to judicial review. Therefore, while it is not explicit in the Bill, there is a mechanism that could be put in place for the independent evaluation of the reasonableness of the determination as to consideration. Therefore, I hope that the noble Baroness feels able to withdraw her amendment.

Baroness Noakes: Before I consider what to do with my amendment, will the Minister explain the difference in Clause 64(3) between paragraphs (a) and (b)? As I understood the Minister, the formulation of "reasonable consideration" was appropriate with regard to money, but somehow "arm's-length" terms was the correct formulation for everything else. If we have a potentially monopolistic provider, why are not paragraphs (a) and (b) both on reasonable terms rather than market terms? If you can ascertain arm's-length terms for one set of conditions, you can do it for price, or vice versa—or, you cannot do it for both. There is a mismatch in the Government's own drafting, in that they apply a different standard to price compared to the other terms, which may be more important than price, in practical terms, for the residual organisation providing the services. Yet the Government have set up a completely separate way in which to determine those two sets of terms. Can the Minister explain the difference?

Lord Myners: My interpretation is that Clause 64(3)(a) relates to the core provision of continuity. Any other provisions going beyond that would be on an arm's-length basis. That is to say that there are certain issues where the transferee bank would absolutely require a continued service from another group company as part of the transfer. It might elect to receive other services from another part of the transferor and those would be negotiated on a commercial arm's-length basis.

Baroness Noakes: Perhaps the Minister has read too much into subsection (3). Subsection (3)(a) refers to "provision for reasonable consideration". It does not refer to core services or anything like that. Subsection (3)(b) refers to "any other provision". If we take the provision of IT services, which is the example that the Government have used today and in another place, there are terms about price, but group companies might have all sorts of other important terms in a service level agreement, such as speed of turnaround, access to processing, updating and all the things that go with the provision of a facility. What is the difference between price and all those other provisions? If you can determine one on arm's-length terms, why cannot you determine price on arm's-length terms? They are two different streams in one; this is not about core services.

Lord Myners: Other terms may take a wide variety of forms and do not amount simply to a reasonable price, as the noble Baroness suggests. Here, the requirement is qualified by a practicability requirement. The essential difference is the qualification on practicability.

Baroness Noakes: The Minister takes me to my second question, before I determine what to do with the amendment. When he spoke earlier, he emphasised that,
	"so far as is reasonably practicable",
	applied only to paragraph (b) of the provisions, whatever they are. He made a distinction between that and paragraph (a), which is about price. The Minister has said that again, which may be fine, but it is not what the Bill actually says. The Bill applies the qualification,
	"so far as is reasonably practicable",
	to paragraphs (a) and (b). Therefore, again, the Minister has given me a slightly confused message and I wonder whether he can explain it.

Lord Myners: The Minister is giving slightly confused messages because he is being given a slightly confused message. Perhaps I may beg the indulgence of the noble Baroness on this point; if she will withdraw her amendment I will certainly seek to give an absolutely precise answer to her question and allow that to inform her position on Report.

Baroness Noakes: I thank the Minister. That just leaves Amendments 113 and 114, which relate to whether or not there should be some kind of independent mechanism to substitute for the Treasury's judgment. When I hear Ministers saying, "Of course, there's judicial review", I always hear the sound of barrels scraping. No good justification can be put forward, so we fall back on the claim, "We have good old judicial review, which everyone knows is the most accessible and flexible of remedies available". That will not wash.
	I will consider what to do about Amendments 113 and 114 when I have had the chance to consider the other issues that the Minister is going to look at between now and Report. I feel that these clauses are weighted against what the Minister described as part of a failed organisation. Yes, that may be true, but these may be viable businesses that are part of a failed organisation; that is, they may have an ongoing life on their own, unrelated to the failed bank. We need to reflect a balance here—that is the purpose of my amendment—and not simply treat the residue as something that can be pushed around, shoved and told what to do.

Lord Stewartby: Can the Minister give me an assurance? Looking at all these clauses on continuity obligations, I ask myself what would happen if the particular services were outsourced, or partly outsourced. I imagine that the Government will have considered the point and, I presume, will have satisfied themselves that that is covered by the Bill. However, it is difficult to think through the practical process that would apply in these cases. I would like the comfort of the Minister telling us that the Government have been conscious of this matter and are now content with the way in which it has been addressed.

Lord Myners: The noble Lord, Lord Stewartby, addresses a question that reflects the reality of complex financial institutions. We have already addressed the issue of an essential service being provided to a banking subsidiary by another arm of the group. The noble Lord also refers to outsourcing arrangements in which a critical dependency is secured from an unaffiliated, unrelated entity. Those contracts would follow on with the transferee institution, so nothing in the Bill places at risk critical dependencies that are covered by an external third-party or non-related supplier. The noble Lord, Lord Stewartby, is right to seek assurance on that, given the reality of how many of our larger banking organisations are now structured.
	Amendment 107 withdrawn.
	Clause 63 agreed.
	Clause 64 : Special continuity obligations: property transfers
	Amendments 108 and 109 not moved.
	Clause 64 agreed.
	Clause 65 agreed.
	Clause 66 : General continuity obligation: share transfers
	Amendment 110 not moved.
	Clause 66 agreed.
	Clause 67 : Special continuity obligations: share transfers
	Amendments 111 and 112 not moved.
	Clause 67 agreed.
	Clause 68 agreed.
	Clause 69 : Continuity obligations: consideration and terms
	Amendments 113 and 114 not moved.
	Clause 69 agreed.
	Clause 70 : Continuity obligations: termination
	Amendment 115
	 Moved by Baroness Noakes
	115: Clause 70, page 36, line 3, at end insert—
	"( ) The continuity authority shall ensure that compensation is payable to the person on whom the obligation is imposed if that person suffers financial loss because of the nature, extent or timing of a notice given under subsection (1)."

Baroness Noakes: The amendment sticks with the continuity obligations. It would add a new subsection to Clause 70, which allows the Bank of England or the Treasury to terminate a continuity obligation by giving notice. I ask first why this clause is necessary. If the correct arm's-length terms have been determined under Clauses 64 or 67, they should have dealt with the discontinuance of the obligations. That would be a normal part of any arrangements for the provision of ongoing services and what commercial contracts for the provision of services would be expected to contain.
	Contracts such as IT service contracts contain notice periods and, where appropriate, predetermined compensation terms related to the notice, especially where short notice periods are involved. Let us take the provision of IT services, which we have discussed and which is probably the classic example under these obligations. The residual bank or group company will have staffing matched to the services that it is required to deliver under the continuity obligations. If, say, half of those services are no longer required because the transferee has made its own arrangements, which I think everybody thinks is the right way to go, there will be staff to get rid of and perhaps property to dispose of or other costs related to that discontinued activity. Those things will all involve costs. If short notice is given, those costs could be significant.
	My Amendment 115 would mean that, when notice is given, the Bank or the Treasury ensures that the residual bank is compensated for the consequential costs of termination. Obviously, the longer the notice, the less the cost is likely to be, but even then there could well be a cost. I invite the Minister to say whether or how the Clause 70 termination powers are constrained—by operation of the other provisions of the Bill or otherwise—so that the result is fair for the residual bank and, indeed, for other group companies that might be involved in this service provision, and whether the Government expect the arm's-length terms covering termination provisions to cover the circumstances that I have described. If that is not covered by the existing expectation of the way in which the clauses allow terms to be set, I urge him to consider carefully my amendment to Clause 70, or something similar. I beg to move.

Lord Davies of Oldham: We consider that Clause 70 provides the authorities with the necessary flexibility to remove a general continuity obligation that has arisen. I agree with the noble Baroness that in some circumstances—there may not be very many—it may be appropriate for this to occur. This will happen when adequate arrangements have been put in place under special continuity powers or ordinary contractual arrangements. Therefore, the obligation will be terminated against a background where a considerable measure of agreement about the future has been reached. Nevertheless, we need to provide for the continuity obligation to be terminated.
	However, it is the Government's view that compensation should not be required if a general continuity obligation is terminated, because the service provider will no longer be under an obligation to provide the service. I should make it clear that if a continuity obligation is terminated, there is absolutely nothing to prevent a service provider from coming to a normal commercial arrangement with the bank for the service that it wishes to provide. However, we do not think it appropriate that compensation should be due if the obligation is terminated and the service is no longer continued. The implications of that would be in effect to provide a subsidy to the provider. This would scarcely make a great deal of sense if, for example, the bank could obtain the service at a lower price from another provider. While I wish to defend the need for a provision in the Bill to terminate a general continuity obligation, I agree with the noble Baroness that this may not occur too often. However, when it does occur, a case cannot be made out for effectively giving a subsidy to the provider when the bank could potentially obtain the service elsewhere. That is the basis of the provision.

Baroness Noakes: I hear what the Minister says, but I shall take him back to my example of IT services. If one has arm's-length IT service provision, because the service provider has to gear up in hardware, software and people, it is usually the case that those contracts, if they are on arm's-length terms, contain terms dealing with duration and termination, because termination means that there are some dead costs often left behind and/or that there are excess facilities. We are not necessarily talking about tradable services; I understand that the continuity provisions are about bespoke services much more than about tradable services. You can go out and get a new provider for tradable services—for example, office cleaning—but these services tend to be interwoven and specific. If you had outsourced them—if, instead of a group company providing them, there was an outsourced provider—that contract would almost certainly have provisions covering termination, or certainly termination ahead of the anticipated term. That was the issue that I was seeking to probe and the Minister did not quite answer that aspect of it for me.

Lord Davies of Oldham: That may have been because I was concentrating on what I regarded as a more germane point. There was a hint in the amendment of an unfair commitment of funds in terms of a potential subsidy to a provider in circumstances for which we cannot envisage the justification.
	On the point made by the noble Baroness, of course a continuity obligation will be accompanied by considerable communication between the authorities and the service provider, particularly in the case that she has identified of a provision of a service that may be of a considerable duration and which is absolutely essential to the continuation of the enterprise. If a piece of investment is critical to continuing to provide the service, this would be likely to comprise part of what is "reasonable consideration", which was the subject of the discussion that we had on the previous amendments. I must refer back to the previous clause, as further detail may be provided in the orders made under Clause 69.
	I emphasise two things. First, there is bound to be considerable communication between the authorities and the service provider in the instance that the noble Baroness has identified. Secondly, that would need to be examined under the basis of reasonable consideration. I am against what the amendment would provide, which is a concept of a subsidy in circumstances where the service might be readily disposed of and obtained more cheaply elsewhere. That is the point that I was seeking to make.

Baroness Noakes: The Minister keeps using the word "subsidy". I shall read my amendment to him:
	"The continuity authority shall ensure that compensation is payable to the person on whom the obligation is imposed if that person suffers financial loss because of the nature, extent or timing of a notice given under subsection (1)".
	I cannot see anything in that about which the Minister could justifiably use the word "subsidy". The amendment was designed specifically to cover only loss that was incurred by the company providing the service. I do not know whether the Minister's speaking note was wholly predicated on subsidy; it certainly seemed to be that way and it seemed to me that the Minister did not address my points. He said that this would potentially be covered by "reasonable consideration".
	I will carefully consider what the Minister has said in the totality of his remarks and I shall disregard everything that he said in accusing my amendment of requiring a subsidy to be paid, because I do not think that even he, if he had read it more carefully, could have interpreted it in that way. Between now and Report, I shall consider what to do with this amendment, alongside the other amendments that are really about terms and conditions of provision of services, and I will consider whether there needs to be some valuation or appeal mechanism. For today, I beg leave to withdraw the amendment.

Amendment 115 withdrawn.
	Clause 70 agreed.
	Clause 71 : Pensions
	Amendment 115A
	 Moved by Viscount Eccles
	115A: Clause 71, page 36, line 22, leave out subsection (4)

Viscount Eccles: This is a short probing amendment. I will be brief because I think that the subsequent debates on this clause will be much more interesting than mine. The amendment would take out Clause 71(4), which states:
	"Provision by virtue of this section may (but need not) amend the terms of a pension scheme".
	I think that we would all agree that amending the terms of a pension scheme is a very sensitive matter. The position would of course be easier if a failing bank was taken speedily into public ownership in whole and not in part—then, if and when sales were subsequently made to private sector purchasers, there would be time to sort out the pension issues which are often complex when a group of companies is split. However—with assets going one way and shares another, with residual assets and liabilities, and with a staff divided when the FSA pulls the trigger for the tripartite authorities—no time is provided. The pension die is, in effect, cast. In contrast, when groups, typically, make part-sales of subsidiaries, there are established principles, present law and well tried appeal procedures to deal with the pension issues that arise. I beg to move.

Baroness Noakes: My noble friend raises important points in his amendment. I have given notice that, on a probing basis, I wish to oppose the Motion that Clause 71 stand part of the Bill. I have grouped this opposition with my noble friend's amendment as I suspected that I would raise issues covering the same territory. I seek to ascertain the extent to which the power could be used.
	The clause is phrased in terms of being able to modify the property rights and liabilities of a pension scheme, and I have some specific questions for the Minister on what it allows the authorities to do. Does it allow the Treasury or the Bank of England to rewrite a defined benefit scheme so that it becomes, for example, a defined contribution scheme? Does it allow the Treasury or the Bank to alter accrued rights of employees of the failed bank? Does it allow the Treasury or the Bank to alter the accrued rights of deferred pensioners or pensions in payment? Does it allow the Treasury or the Bank to single out the pension rights of individuals as opposed to dealing with the rights of all members of a pension scheme? I am well aware of the public annoyance at finding that former directors sometimes have very large pension pots due to them when they leave. Is that one of this clause's targets? Can this clause be used to amend rights in relation to individuals' pension pots?
	If any of those things can be done, can the order or instrument affect the existing legal rights of the individual? Can the individual demand his existing rights, or can the clause be used to rewrite his contractual rights? I see that the noble Baroness, Lady Turner, is in the Chamber. Will the unions have any say whatever about the rewriting of a failed bank's pension scheme—if that is what this clause allows—before it is done?
	At face value Clause 71 appears to allow practically anything to be done, with virtually no intervention by anyone. That is why it is important that the Minister is clear with the Committee about how the clause will be used.

Baroness Turner of Camden: I listened with interest to what the noble Baroness, Lady Noakes, said, and I agree with quite a lot of it. I am most interested in the arrangements that could be made to preserve and protect the rights of existing employees, as that is important. In banking, generally speaking, employees have reasonable pension provision, and attempts should be made to ensure that their rights are protected. I am not at all certain whether Clause 71 does that and I await the Minister's response with interest.

Lord Higgins: I intervene at this point because I have a meeting elsewhere in the House at 4.30 pm and may not be able to speak on whether Clause 71 should stand part of the Bill.
	I agree with my noble friend on the Front Bench. It seems that this clause enables the Government and the Treasury to do almost anything with regard to a failed bank's pension scheme, as compared with the situation that would exist if the bank failed—I was going to say "in the normal course of events"—without the Government having set up the arrangements in the Bill. In that context, I ask the Minister to what extent there has been consultation on this clause with anyone representing trustees of pension schemes or organisations involved in pension schemes generally?
	This issue is of great importance if, indeed, under subsection (4) powers are being taken to amend the terms of a pension scheme with apparently no qualification whatever regarding the protection of existing pension interests. If a bank fails, perhaps the pension scheme and pension fund will have certain protections, but what will the situation be with regard to the pension fund as against the more general assets of a failed bank? In particular, I presume that provision could be made to change a final salary scheme to a defined contribution scheme to the disadvantage of the pensioners, but that may or may not happen if the bank has not been operating under a new regime established by the Bill. Therefore, I think that very grave issues are raised, and the fact that all this is contained in a single clause indicates that the detail of how the Government envisage the clause, and in particular subsection (4), operating is rather lacking.

Lord Newby: This debate raises some important issues. I am sure that all noble Lords will take the view that, for the generality of members of a bank's pension fund, protecting the fund should be given a high priority. However, there is a difference between the generality of a bank's staff and some of its more highly paid members. Under Clause 20, we discussed the situation in respect of directors, but I think it is the case that, with regard to some of the banks which are now in most difficulty, those who acted in the most reckless fashion and lost billions of pounds were not necessarily directors. They ran a unit of the bank but were not technically directors. Therefore, would this clause enable their huge pension entitlements to be curtailed to reflect the losses that they have run up?

Lord Davies of Oldham: I very much appreciate the succinct way in which the noble Viscount, Lord Eccles, introduced his amendment. I had prepared to respond to his points in a similarly succinct way and to give reassurance on those limited areas. However, the fact that the question on Clause 71 stand part is grouped with the amendment has inevitably led to a much wider survey of the issue. That has happened before I have been able to move government amendments, which will require me to spell out the thinking behind the clause in considerably greater detail, and before I have had the chance to listen to, and reply to, the arguments relating to additional amendments to the clause. I am therefore in some difficulty. I hope noble Lords will forgive me if I try to answer the points briefly at this stage, as fairly substantial discussions on this clause and the whole issue of the pension position are still to flow in our later proceedings.
	I want first to emphasise why Clause 71 is necessary. A modification to a pension scheme may be necessary to facilitate a fully effective transfer. An order or instrument may in particular make provision regarding the consequences of a transfer for a pension scheme or about the property, rights and liabilities of a scheme. The instrument may, among other things, modify rights and liabilities, apportion rights and liabilities, or transfer property or accrued rights to another pension scheme.
	If a failing bank is part of a group of companies—the point raised by the noble Lord, Lord Higgins—then all group employees may participate in the group's pension scheme. In this situation, if a deposit-taker is transferred from the group, it is likely to be necessary for the employees of the bank to be transferred to a separate scheme. This clause provides that the authorities may make provision to transfer the employees from the group pension scheme and to establish a new scheme, or to transfer the employees into the transferee's pension scheme for all future service benefits. In the case of a partial property transfer, for example, it may be necessary to make provision to apportion pension liabilities between the failing bank and the transferee. Further, it may be appropriate to make consequential provision regarding the terms of a pension scheme.
	I want to assure the noble Viscount, Lord Eccles—this is the cardinal point which I want to establish with the Committee—that this provision would not amend accrued rights. It does not do that and does not create the possibility of doing it, nor have we any intention of doing it. It applies both to the group position and to individuals. The powers taken in Clause 71 are necessary because leaving pension matters to be dealt with through normal corporate transactional methods could jeopardise the ability of the authorities to effect a swift and effective transfer to resolve the problems of a deposit-taker. For example, in normal commercial conditions any reallocation of pension liabilities would almost always require agreement from the trustees of the pension scheme. That could lead to significant delay while the trustees considered the matter, but it could also result in the trustees requiring a figure—even a ransom—to secure consent. In addition, there might be general regulatory requirements which involve lengthy notice periods, which for obvious reasons is frequently the custom with pension arrangements. All of these matters may impede the resolution of what is intended to be a fairly rapid exercise, and that would be contrary to the broader public interest in effecting the transfer.

Lord Higgins: The noble Lord has made two very important points: first, on the protection of accrued rights; and, secondly, on the position of the trustees. I have looked in vain to find any mention of that in the clause. As it is so important, one would have thought that it would be explicit.

Baroness Noakes: Perhaps the Minister can explain an issue that I tried to tease out when I spoke on clause stand part. Subsection (3) states:
	"In particular, an order or instrument may—
	"(a) modify any rights and liabilities".
	I heard what the Minister said about transferring accrued rights and ensuring that the trustees do not get in the way and about this being a rapid exercise—although I have never found that dealing with pension schemes is a rapid process, whatever instrument is used—but he is ignoring the fact that Clause 71 appears to contain powers to do the things that my noble friends have been asking him about.

Lord Northbrook: I add my concern to the comments of my noble friend Lady Noakes. Subsections (3) and (4) suggest that they may affect accrued rights.

Lord Davies of Oldham: That is where we started with the probing amendment of the noble Viscount, Lord Eccles. Perhaps the Committee will accept that I am giving the clear assurance on the cardinal points raised there.
	We do not intend, nor are we taking the power, to amend accrued rights. We have no intention of intervening with the pension position of individuals or groups. We are seeking to avoid those conditions which obtain in normal commercial practice with regard to the operation of trustees and aspects of concern about pensions. We seek to do that because—I bring the Committee back to the obvious point—we are involved in a transfer that we hope on many occasions to effect as rapidly as possible, because the transfer relates to institutions in considerable difficulty.
	Nothing in the Bill, or in the clause, obviates our obligation to act in accordance with the European Convention on Human Rights. Those rights will be observed and there will be no exercise of power to disrupt accrued rights, which would be quite contrary to Article 1, Protocol 1, of the convention. The Government are giving the clear assurance that we have no intention of doing that through the drafting of the clause. However, we need to move with greater dispatch than in normal commercial transfers. The clause is not drafted to undo employees' pension rights, pots or entitlements. The noble Lord, Lord Newby, asked why we do not single out one group of employees, a limited number. That is not what the clause does, nor is it the intention behind it; it is merely to ensure that we can deal with the problem of institutions more rapidly than is the case under normal commercial transactions.
	I emphasise that I have a considerable amount to say to justify the government amendments to the clause; that is why I am in great danger of repeating myself not only at length but ad nauseam—a fault of which I have been accused in the past. I hope that the Committee will accept that at least I have set out my response to the amendment moved by the noble Viscount, Lord Eccles. The issues raised by the noble Baroness will inform our debate on the next two or three amendments.

Baroness Noakes: I certainly would not want to encourage the Minister to repeat himself at length; I find it difficult to see how he could do so on the amendments that he is about to move, but wonders will never cease.
	The Minister has said extremely helpfully that he does not wish to affect any accrued rights. Yet the Bill, at face value, gives the Government the power to do just that. Perhaps he ought to think between now and Report about an amendment to Clause 71, so that it covers those who have deferred rights—current employees with accruing service or, indeed, those with pensions in payment—but makes it clear that there is no intention to deal with accrued rights. That would be extremely helpful. I know that the Minister cites Article 1, or whatever it is, of the European Convention on Human Rights, but frankly that overarches a lot of things. It is not a first-line provision of restraint on the use of a power; it simply indicates that some people might have to resort to that in due course if challenging it in a court of law. It is not as preferable as having clear statements in the Bill, especially if we are dealing with employee rights. That is an important point in respect of accrued rights.
	Separately, the Bill appears to say that rights can be changed for the future because provision can be made to amend the terms of a pension scheme. That could indicate that you could change the terms of future accrual in the pension scheme from defined benefit to defined contribution, or, if in defined benefit, from 60ths to 80ths, or whatever might give you a lower pension entitlement. I do not think the Minister is saying that; I think he is saying that he wishes to use the clause to make more efficient what can be quite complicated and take quite a long time in the real world. I certainly would not challenge the Government on having that sort of power, but I am most unhappy with a power that is drafted as it is and which appears to suggest that the Government can use it to make fundamental changes to one of the most important rights that people have in their current or former employment with an organisation.

Lord Davies of Oldham: Let me emphasise that rights can be transferred with great rapidity. Under the Bradford & Bingley transfer order, which the Committee will recall, employees were transferred to a new scheme with Banco Santander much more rapidly than one would expect in normal commercial transactions. We all recognise the element of urgency that is bound to attend an issue of that kind.
	I am merely bringing to the Committee's attention the fact that the Government are not seeking to rewrite the law on pensions to disadvantage a single pensioner in the country; they are seeking merely to ensure that, with transfers that are in the public interest and that need to be effected with speed, the pension position is not a block because of the normal processes that obtain with the transfer of pensions. Such a block would jeopardise the successful conclusion of a transfer that is very much in the public interest.
	I cannot emphasise the position a great deal more, but I hear what the noble Baroness says: I have to establish further the Government's position on non-interference in accrued rights. Of course I will take that point on board.

Viscount Eccles: I feel privileged that this debate has been grouped with a stand-part debate, having started with a very modest probing amendment. I am sure that we are all grateful for the assurance that the position of individuals will be reconsidered, because that is what we are talking about and the clause does not really address that situation at all. Accrued rights in a sense make the person paid up when, perhaps because of luck and good negotiation, there is a second pension phase when the business for which he or she works is transferred to a new owner. The Minister referred to the contrast between, in negotiation, being held to ransom and what I might wish to describe as a reasonable deal. In this circumstance, we should not overemphasise this rapidity point. It is slightly reinventing the wheel. There have been many circumstances in which it has been necessary for groups of companies to sell in a fairly distressed situation its subsidiaries. They have had to have negotiations during those sale proceedings about what will happen to the membership of pension schemes. I do not think that there is anything much new in the circumstance of a failing bank.
	I have had experience of taking over a company that was not in a very good condition. Of course, there needed to be negotiation about what would happen to the pension rights of the people in that company. I believe that there is a need for further thought to be put into this clause and, in putting further thought into it, I hope, along with quite a lot of the other provisions of this Bill, that the dice have not been loaded too much in favour of an easier life for the Bank of England or the Treasury. In the mean time, I beg leave to withdraw the amendment.
	Amendment 115A withdrawn.
	Amendment 116
	 Moved by Lord Davies of Oldham
	116: Clause 71, page 36, line 30, after "bank" insert ", or a group company of the bank,"

Lord Davies of Oldham: In moving Amendment 116 standing in the name of my noble friend Lord Myners, I shall speak also to the other government amendments in this group. These amendments relate to extending to bank holding companies the provisions of the Bill that relate to temporary public ownership. As the Bill is drafted, the stabilisation options exercisable by the share and property transfer powers, which form part of the special resolution regime, are exercisable only in relation to banks. The authorities have, during the course of developing and consulting on the Bill, continued to consider the question of how best to resolve different types of failing banks.
	The events of autumn 2008 made it apparent that in some cases exercising a power conferred by the special resolution regime in relation simply to the bank may be insufficient fully to achieve the resolution objectives, particularly that of protecting and enhancing the stability of the financial system of the United Kingdom. The starting point for this issue is that banks often form part of complex corporate groups, and the ultimate "parent" company may not be the company which has the deposit-taking permission and is, therefore, the "bank" for the purposes of the special resolution regime.
	There are a number of reasons why a power limited to banks may be insufficient. First, the activities of the bank and the rest of the group may be so inter-related that the exercise of the transfer powers only in relation to the bank may be insufficient to resolve the bank successfully. Secondly, taking action only in relation to the bank may give rise to serious difficulties with the rest of the group, which is very likely to include other financial companies that are part of, or participants in, the financial system.
	In certain cases, the exercise of the transfer powers in relation to the bank may so disturb the operation of, and confidence in, the group as a whole that it leads to the insolvency of some or all of the other entities of the group. Where other group companies are dependent on the bank for its financing, the exercise of the transfer powers in relation to the bank may interfere with that funding stream and undermine market confidence in the viability of those companies to such an extent that they can no longer continue to operate. Where other such entities in the group are financial institutions, their failure may impede the achievement of the special resolution objectives. In addition, the failure of other entities in the group may give rise to difficulties in the continued operation of the bank, given the interconnectedness of the group.
	Finally, a private sector solution may be more likely on a group-wide than a bank-only basis. This is particularly the case if other non-bank parts of the group are attractive to buyers. I note that the Bill already contains provisions that seek to address aspects of the potential difficulties related to a bank's corporate structures, while Clauses 63 to 70, which we have just considered, impose among other things an obligation on group companies to continue to provide necessary services or facilities under the continuity obligations. However, the Treasury has concluded that the imposition of continuity obligations, while remaining a vital tool in certain cases, will be insufficient to address the full range of difficulties in all cases. Therefore, as we announced in the 2008 Pre-Budget Report, we have tabled amendments to extend the Treasury's power to take a failing bank into temporary public ownership to include bank holding companies. As noble Lords will appreciate, the Bill already provides for the Treasury to take a failing bank into temporary public ownership.
	The powers provided by this group of amendments would be used in cases where the resolution of the bank in isolation would not by itself be sufficient to protect financial stability, public funds, or both. The Committee will appreciate that this is a significant step, although of course it is the product of extensive consultation, and I hope that I have been able to demonstrate that the powers are being introduced in a proportionate manner. We have had considerable discussions on these matters. In determining whether it is necessary to take such action in relation to a holding company, the Treasury will have to consider whether action in relation to the bank alone would suffice for the purposes specified in Clause 9. The power is also limited to the Treasury. This approach ensures that Parliament can hold the Minister exercising powers in relation to a holding company directly to account. We consider that ministerial accountability is important, given the breadth of interested parties in these circumstances.
	The powers provide the flexibility for the Treasury to transfer either the topmost holding company of the deposit-taker or an intermediate holding company. This is useful in circumstances where it is not necessary to transfer the whole group. Once a holding company is in temporary public ownership, the Treasury will have a range of powers available to it in the ways we discussed when considering earlier clauses; in particular, the powers to impose limitations on partial property transfers provided for in Clauses 47, 48 and 60 will apply. In addition, the Treasury considers that, having taken a holding company into temporary public ownership, it is appropriate that it should have the flexibility to effect the full range of transfers in relation to the bank and not just the holding company. The key aims of the exercise of the power to take a holding company into temporary public ownership will be to resolve the position of the bank in the group, to protect and enhance public confidence in the stability of our banking systems, and to take appropriate action.
	In pursuance of these objectives, it may be appropriate to transfer the shares or property of banks in the group. The Treasury may effect an onward partial property transfer from a bank that is part of a group that has been taken into temporary public ownership. This approach has been adopted to provide the Treasury with appropriate flexibility to complete the resolution of each bank affected by the transfer to temporary public ownership of the holding company. However, the Government consider it appropriate to restrict the powers of the Treasury with respect to non-bank entities within the group. Therefore, the full range of onward transfer powers only applies to deposit-takers in the group and the holding company itself. This is where Amendments 116 and 117 cut in.
	Clause 71 provides a transfer instrument or order to make provision about pensions. The modification to a pension scheme may be necessary to facilitate a fully effective transfer. The clause currently applies to pension schemes in which the failing bank is or was an employer. However, we have considered the matter further and the Government are of the view that it does not provide sufficient flexibility for the authorities to deal with all possible resolution scenarios involving group companies in the ways I have outlined. For example, if the Treasury takes into public ownership a failing deposit-taker which is a part of a group, the holding company may be the entity that technically employs the workers of the deposit taker and may also hold their pension scheme. It therefore may be necessary to exercise the pension power at group level instead of at the level of the deposit-taker, and Amendments 143 and 144 make consequential provisions in Part 3 in relation to the bank administration procedure as part of the expansion of the temporary public ownership tool to holding companies.
	In summary, this group of amendments is an important addition to the Bill which will allow the special resolution regime to be effected for banks that are part of complex corporate groups. I hope that I have established the rationale for why the Government have tabled amendments which seek to extend these powers in the context of the debate that we have just had about the powers in Clause 71 and the intentions of the Government with regard to pension provision, particularly in relation to the important point that the Government have no intention whatever of interfering with the accrued rights of anyone in these pension schemes. I beg to move.

Baroness Noakes: The Minister will not expect these Benches to greet any amendment which increases the scope of nationalisation even if it is accompanied by that well known word "temporary", which has no defined meaning in the Bill.
	I am not sure that the Government have made a clear case for this. Is the Minister saying that these provisions are only required for pension schemes in order to ensure that they can be properly dealt with? I gathered from the tail-end of the Minister's remarks that that is what he was saying. Apart from that, he said that bank structures are often complicated—which I am sure they are—but he did not explain why the continuity obligation clauses, which we debated partially earlier, could not deal with the issues that he raised. I am not clear what it is that has led the Government to seek this additional nationalisation power unless it is only for pensions. I found the way in which the Minister introduced it difficult to follow. Perhaps he will cover that point in his reply.
	Can he say also how many UK banks are likely to have holding companies which could get dragged into nationalisation? Is it a large number of banks? I am sure the Treasury has been passing its nationalisation slide-rule over the whole of the banking sector so there must be an easy answer. The Minister's colleague next to him looks as if he is well aware of the answer so I am sure there is one. How many banks could have their holding companies dragged in in this way?
	Amendment 126 proposes a new clause on holding companies and its subsection (4) restricts its use to holding companies which are incorporated in the UK. In practical terms, that is probably all that the Government can do, but have they considered the extent to which that may now make the UK an unattractive place for a bank to have its holding company? If that were the case, it would add to a number of other features that have accumulated over recent years of why the UK is not a good home for the holding companies of organisations. In particular, have the Government considered whether this might drive bank holding companies out of the UK? It could leave the UK bank operating in the UK but its holding company could go somewhere else. I remind the Minister of HSBC. It is currently headquartered and based in the UK. Its name is the Hong Kong and Shanghai Banking Corporation, and it was domiciled in Hong Kong. When the Chinese looked as if they were going to take over Hong Kong, it activated provisions in its articles of association and moved to New York. I am not suggesting that HSBC would look at the Bill and think about moving, although it might, but it illustrates the point that banks that operate on a global scale and their holding companies do not have real roots in territories. They can just up and move to another territory. If this clause is on the statute book, will it not encourage holding companies to move outside the UK, which is not to the advantage of the UK?
	A more detailed point relates to Amendment 127. It brings in which of the powers in the earlier part of the Bill can be used in the context of the holding company. Clause 20, which we debated earlier, relates to rewriting the employment rights of directors. This amendment allows the rewriting of the employment rights of directors of the holding company and of the bank. I understand those two within the Government's rationale for Clause 20, but I cannot understand why that clause should also apply to the directors of a bank in the same group. I do not think there is any suggestion here that the bank in the same group is a failing or failed bank, so why are the Government taking powers to reach into another bank, not the failed bank, in the way set out in Clause 20?
	Having looked at this ability to take the holding company into public ownership, I went back and looked at the earlier part of the Bill to see if it dealt adequately with everything that might come up in the context of a holding company. I shall put to the Minister some things that might not be adequately dealt with in the early part of the Bill. We are now potentially taking into temporary public ownership businesses that are nothing to do with a failed bank and are potentially viable, vibrant, saleable or whatever. There just happens to be a failed bank. On the first day in Committee, we debated the objectives of the special resolution regime that this holding company is being brought into, and the Government rejected the amendment moved by the noble Lord, Lord Newby, in relation to enterprise value and our amendments in relation to creditors. If the Government are going to go beyond taking into public ownership failed banks and grab all kinds of other activities, they ought to revisit whether the terms in which the objectives are stated in Clause 4 are robust. If the Government do not do so, we need to before Report.
	The second area that the Government ought to revisit is the code of practice issued under Clause 5. The draft code does not include anything because it was issued before the Government came up with the wizard idea of grabbing holding companies and fellow subsidiaries while taking hold of a bank. That ought to be covered in the code of practice, and I was unclear whether the way in which the code of practice was drafted in terms of taking a holding company into temporary public ownership would require the Government to cover that. It seems to me that it should. I leave those points with the Minister, but I hope he will reply to the questions I asked earlier.

Lord Newby: I have a simple question for the Minister. These provisions deal with a situation in which a holding company is taken into temporary public ownership. Is there a good reason why similar provisions are not being introduced to enable the holding company being taken into temporary temporary public ownership to be a bridge bank?

Lord Davies of Oldham: I confirm the noble Baroness's suspicions about my numeracy. I do not have in my head the number of banks that belong to holding companies, but it is obviously quite a number. We will provide a figure and I will circulate it to all noble Lords who have participated in the Committee. The category includes RBS and HBOS, and there are a number of others. I assure the noble Baroness that I will answer that question fully in due course, certainly before Report.
	The noble Baroness made a great deal of the fact that these increased powers, which the Government are convinced are necessary in view of the problem in operating the resolution procedure, may make the United Kingdom an unattractive place for holding companies. I do not think that the United Kingdom is setting out to be an attractive place for holding companies that contain potentially failing banks. Let us remember the context of the Bill—it deals only with the circumstances in which failure has occurred. The Government's concern should be to ensure the encouragement of successful enterprises in this country. With regard to the Bill, we have to address ourselves to where there are failures.

Baroness Noakes: Does the Minister know how to differentiate, ex ante, between failing and successful organisations so that we attract the successful holding companies that have successful banks and not those with duff banks? What about the signals that that will send to mobile banks regarding where they should locate?

Lord Davies of Oldham: The Government are not going to make that decision. They will not apply the criteria for that; the banks will decide whether they come here or not. I should be exceedingly wary of giving enormous encouragement to holding companies that may contain failing banks. The noble Baroness seems to suggest that because we are addressing ourselves to this problem in forthright terms we are, by definition, rendering ourselves unattractive—quite the opposite. Guaranteeing the viability of the financial system is an absolute prerequisite for continued investment in this country, which is why the Government are pursuing this strategy.
	On the more general points, the noble Baroness asked about the code of practice. It applies to the holding companies' powers, and the draft code will need to be updated to take account of the amendments that we are introducing. The noble Lord, Lord Newby, asked about powers given to the Bank of England. Resolutions on a holding company level have the potential to affect a large number of parties, including those not part of the financial services sector. It is likely that the public interest decision of whether to intervene will involve balancing the interests of a wide variety of persons. The noble Lord will not be surprised to hear that in a democratic society we consider that government Ministers answerable to Parliament are the best placed to make these judgments. The temporary public service option has a higher public interest test for intervention than the other stabilisation options. As the noble Baroness emphasised, we preface public ownership with the crucial word "temporary". I hear what the noble Lord, Lord Newby, says about these issues; he articulates his position with great frequency and considerable force. However, I am sure that he fully understands the Government's position vis-à-vis the Bill.
	I emphasise that these government amendments are the product of the consultation that we have been able to carry out and the extra time that we have been able to devote to analysing a rapidly developing situation, against a background where the legislation needs to be delivered in a limited period. The Government have been assiduous in their consultation in the months prior to the legislation. The amendments are the product of more recent developments. I commend Amendment 116 to the Committee.

Baroness Noakes: The Minister did not address two of the questions that I asked him. Perhaps I may help him by reminding him. I asked him, first, what the fundamental rationale for the holding company provisions was. Towards the end of his initial remarks, he spoke about dealing with pensions. When we dealt with Clause 71, he indicated that the amendments were about pensions. Are the new clauses fundamentally about pensions or are there other matters? Will the Minister explain how those other matters are unable to be dealt with by the continuity obligations in the clauses just before those affected by the amendments?
	My second question was about the application of Clause 20. I asked the Minister why, in subsection (2)(a) of the proposed new clause, the Clause 20 powers apply not only to the directors of the holding company and the failed bank but to the directors of another bank in the same group, notwithstanding that that bank is not a failed bank. The Minister did not explain why the Clause 20 powers should be applied outside the context of the holding company directors, who may well be taken to have some responsibility for the failed bank that is that company's subsidiary. I am unclear why the directors of another bank in the group are dragged into the Clause 20 provisions.

Lord Davies of Oldham: The amendments are tabled in relationship to pensions because the pensions issue raises the matter in an obviously precise form—namely, that pension holders in the individual bank may be part of the scheme that obtains across the group, which was the burden of our discussion earlier.
	The noble Baroness asked why other directors are dragged into the provisions. The issue is authority in relation to a failing bank. We need to be able to ensure that the management of all deposit-takers can be changed if necessary to achieve the special resolution regime objectives. I share the view of the noble Baroness that the crucial objective is protecting financial stability and depositors. The powers are necessary to ensure thorough examination of management so that the management necessary to operate within the framework of the special resolution regime is present.
	I emphasise again that our problem with using just the word "bank" is that a very large number of deposit-takers in the United Kingdom—I apologise to the noble Baroness; I cannot put a precise figure on it, but she will know that it is not one that I would obviously have in my head—are part of complex group undertakings. We are consulting on the additional powers necessary to deal with these groups if they should get into severe difficulties. A Banking Bill that dealt just with banks and not with holding companies in circumstances where the financial difficulties may go beyond the single deposit-taker would indicate that the legislation could not meet its objectives of bringing security to the financial situation, so it is important to ensure that the resolution tools work for all banks.
	As financial markets and firms continue to develop, and consolidation within the industry continues to occur, it is important to ensure that the authorities have the appropriate powers available. Transferring the whole of a group, if the Treasury considers that transferring the deposit-taker alone would not adequately resolve the threats to financial stability, is likely to be the effective way in which to take control of the deposit-taker to stabilise it when there is a threat to financial stability. It will be recognised that just dealing with the deposit-taker itself in certain circumstances may not be sufficient. We have to ensure that the deposit-taker will be fully operational after the transfer; otherwise, there is no point in having put it into the regime. Secondly, it helps to address the problem that, if a deposit-taker is transferred out of a group, the group may fail. This could be a significant risk to financial stability itself, so the authorities have no option but to consider the wider picture.
	Of course, we recognise that this has the potential to be invasive, so any decision to extend the resolution tools to group companies needs to be accompanied by the appropriate safeguards. That is the basis of some of the past discussions that we have had on the Bill and, undoubtedly, of further discussions that we will have as we progress.

Baroness Noakes: I hear what the Minister says about using the power. The power is restricted; it is not really about whether or not pensions cause a problem—that might have been a red herring that the Minister introduced. The power can be used only if the holding company needs to be taken into public ownership for the purposes of conditions A and B in Clause 9. It is not actually about continuity obligations at all; it is only about financial stability.
	I am still mystified about why other directors of banks within the group have to be affected by the Clause 20 powers. There is no suggestion that any other bank in the group has a financial impact of that sort, otherwise it would have been sucked into the powers in Clauses 7 to 9. I still do not understand why the good bank in the group is tainted by the bad bank. Will the Minister explain that?

Lord Davies of Oldham: The Government are seeking the necessary flexibility to envisage those situations that have not obtained thus far but may do. With a holding company with a failing deposit-taker in its framework, it is right that the authorities should examine the nature of the direction and policies pursued. After all, the holding company might hold another deposit-taker. Of course, it will be necessary to examine the implications of the failed institution that is going into the special resolution regime and what impact it has on the group, as well as the effect that the holding company has on deposit-takers in its framework.
	I shall not convince the noble Baroness that these powers are necessary unless she accepts the fact that the authorities should not make provision solely for a bank taking a deposit that belongs to a group when some of the direction and policy of the bank may relate to influences beyond its own directors; it might even have directors in common with the holding company. There would be no option but to examine that kind of situation. That is all that the Government are seeking in these terms.
	Amendment 116 agreed.
	Amendment 116A
	 Moved by Viscount Eccles
	116A: Clause 71, page 36, line 30, at end insert ", and
	(c) the persons affected by the procedures under this section shall receive a statement setting out their pension position within six months of any transfer orders or instruments made as set out in subsection (1)(a) to (c)"

Viscount Eccles: I will again be brief and return to a small issue about pensions and pension schemes. I propose to add at the end of Clause 71 a short paragraph that gives individuals the right to be provided with information. It typically takes a long time to resolve the splitting of a pension scheme and its assets and to achieve a situation in which individual members know exactly where they stand. In this case, the tripartite authorities would be starting a process for reasons that they considered to be advantageous to themselves and the public interest. Therefore, they need an obligation to report on the results of their decision in a timely fashion. That would provide a reasonably early opportunity for representations to be made by members of a scheme or schemes and their representatives, particularly if they are uncertain about whether equity is being achieved. I beg to move.

Lord Davies of Oldham: The noble Viscount, Lord Eccles, raises an important point about ensuring that pension scheme members are kept informed, but I do not think that his amendment is necessary.
	Trustees of a pension scheme are under statutory obligations to provide members and beneficiaries of pension schemes and relevant trade unions with a written statement of material changes or alterations to the scheme. Depending on the nature of the change or alteration to the scheme, generally written notice has to be provided within two or three months after any such change has taken effect. In addition, trustees must prepare and make available an annual report, which must be provided free of charge to members and beneficiaries on request.
	These reporting obligations, which I know will be familiar to the noble Viscount, would apply to the trustees of any pension scheme affected by a transfer order or instrument under Clause 71. Therefore, I do not think that it is necessary to accept the amendment. We have the existing statutory mechanisms for the provision of information. This legislation complies with that and does not change it in any way. I hope that the noble Viscount's concerns are satisfied.

Viscount Eccles: I would be more comforted if I were certain that trustees would not think that the partial transfer procedure was likely to have overridden their power to act as efficiently as they would have liked to have acted on behalf of the members of the scheme. That is another reason why I sincerely hope that more thought will be given to Clause 71. Whereas much of the Bill could be shortened, there is a case for spelling out in more detail the provisions with regard to pension schemes. Meanwhile, I beg leave to withdraw the amendment.
	Amendment 116A withdrawn.
	Amendment 117
	 Moved by Lord Myners
	117: Clause 71, page 36, line 30, at end insert—
	"(7) In subsection (6)(b) the reference to a group company of the bank is a reference to anything that is or was a group undertaking in relation to the bank within the meaning given by section 1161(5) of the Companies Act 2006."
	Amendment 117 agreed.
	Amendment 118
	 Moved by Lord James of Blackheath
	118: Clause 71, leave out Clause 71 and insert the following new Clause—
	"Pensions
	Whereas a bank once taken under control by the Treasury will thereby have its solvency restored, nothing in that subsequent restoration of solvency shall preclude the former pension scheme attached to that bank from applying for inclusion in the Pension Protection Fund on the grounds that its parent was insolvent prior to being taken under Treasury control."

Lord James of Blackheath: The amendment derives from a fear on my part that the drafters of the Bill have overlooked an important condition introduced in the Insolvency Act 1986, which will interact very badly with the recently passed Pensions Act 2008. Under Section 1(3) of Part II of the 1986 Act, for the first time, in contrast with all previous insolvency legislation, the directors of a company which was challenged as to solvency were obliged not to accept insolvency until they had explored all possible avenues for its correction. Severe penalties would fall on them if they did not do so.
	As matters stand, it would be a reasonable assumption that any bank getting into dialogue with the Government with a view to a rescue was following that path and taking reasonable steps to avoid insolvency. If those discussions prospered, and the insolvency was avoided by the bank being embraced by the Government's rescue arrangements, that bank would not have gone into insolvency. If the pension scheme was afterwards set adrift and not continued in the direct protection and ownership of the company and the Government, it would not qualify for inclusion in the Government's pension protection plan.
	I am sure that that is an unintended consequence. All I am looking for in this probing amendment is an assurance from the Government that they will amend this clause to ensure that, whatever happens, a pension scheme that is bereft and set adrift as a result of being embraced by the Government's nationalisation programme is itself either looked after or passed into the care of the pension protection plan. I beg to move.

Lord Davies of Oldham: I am conscious of the noble Lord's expertise in this area and of my own limitations, so I shall reply to him in the following vein. What he has described is clearly the intention behind this legislation. We want to ensure that bank insolvency and administration—the procedures established in Parts 2 and 3 of the Bill—should be deemed to be a qualifying insolvency event for the purposes of the Pensions Act. The noble Lord knows that this would mean that, should a bank administrator or liquidator be appointed in accordance with those parts of the Bill, the insolvency practitioners would be under a statutory obligation to file a notice to the board of the PPF informing it of whether or not they considered that the scheme could be rescued, and the other relevant provisions of the Pensions Act 2004 would apply.
	The Government are considering consequential amendments to make that effective. Such an amendment would be made either to Clause 253 or under the relevant provisions of the Pensions Act 2004. The noble Lord has made his case. We intend to respond. I hope that he feels that this is a constructive response.

Lord James of Blackheath: I thank the Minister for that assurance, which I am happy to accept. I ask only that the wording be abundantly clear and remove any uncertainty. There are some nasty little people called licensed insolvency practitioners prowling the world, who will look to make trouble if they find any opportunity. The clause needs to be watertight.
	Amendment 118 withdrawn.
	Clause 71, as amended, agreed.
	Clause 72 : Enforcement
	Debate on whether Clause 72 should stand part of the Bill.

Baroness Noakes: I can be brief. I have signalled that I oppose Clauses 72 and 73 standing part of the Bill on a probing basis. They deal with enforcement and disputes respectively.
	I suspect that these clauses are more symptoms of the Government not having worked out in advance how they will deal with the important areas of enforcement and disputes. However, I shall give them the benefit of the doubt and invite the Minister to set out for the record how the Government see both enforcement and dispute provisions working. I invite the Minister to say when those provisions will be revealed to the world in draft and what consultation they expect to undertake.
	I also ask the Minister to address why the regulations are to be dealt with by the negative procedure only under Clause 72. I appreciate that the power does not extend to the creation of a criminal offence or the imposition of a penalty but, nevertheless, the rights of individuals may be seriously affected by the detailed regulations. In those circumstances, it is normally the case that Parliament should have a say in how those regulations are drawn.

Lord Myners: The noble Baroness has called a debate on the purpose of Clauses 72 and 73. It may be helpful if I set out the purpose of these clauses as seen by the Government. They relate to share transfer orders and instruments and property transfer instruments; that is to say, the stabilisation powers. They enable further provision to be made as regards the enforcement of obligations imposed by such instruments and orders, and as regards disputes.
	The starting point is that such orders and instruments make changes or impose obligations by operation of law. For example, a share transfer order transfers ownership of shares by operation of law. That is to say, the effect of the order—without more—is to divest the original shareholder of ownership and confer ownership on the transferee. No enforcement mechanism is needed in such circumstances as the order itself has achieved this effect. A former shareholder might attempt to vote his original shares, but any such action would be devoid of consequence as he is no longer the valid owner of the shares. However, the debates on the Bill—and, indeed, the experience of previous resolutions—have shown that this is a highly complicated field where it may be necessary to address a series of complex rights and liabilities in order to make resolutions effective. Given the importance of legal certainty in this area—many noble Lords, including the noble Baroness, have emphasised this point—we consider it prudent to be able to make specific provision about enforcement and disputes.
	Clause 72 concerns enforcement. As I have previously stated, it is essential for the achievement of the special resolution regime objectives that the provisions in the orders and instruments take effect with certainty. In certain circumstances, it may be necessary to impose obligations on persons in relation to transfers, which require specific actions to be taken. In such circumstances it may be desirable, and aid certainty, to spell out the specific means by which such obligations are to be enforced. An example of an area where it may be necessary to impose specific obligations can be given in the context of share transfer powers. As I have said before, a share transfer takes effect simply as a result of the order or instrument itself. But shares may be held in a variety of different ways. For example, normally a shareholder of a certificated share must be registered in the register of members of a company in order to exercise the powers of a shareholder, or bearer shares may be held, which enable ownership of the shares to be transferred by physical delivery. In each case the transfer of ownership of such shares by the exercise of share transfer powers would be effective without imposing further obligations. This is the effect of Clause 21. But it may be desirable to impose such obligations to promote legal certainty. So an obligation could be imposed on the registrar to enter the transferee on the register of members, or on the holders of bearer shares to surrender them. If such requirements were not enforceable and relevant persons, such as the registrar, were not to undertake these actions, this would lead to confusion and potentially a lack of confidence in any transfers and the effectiveness of the implementation of the stabilisation procedures.
	These obligations therefore aim to ensure that the formal requirements which normally relate to the transfer of shares and which must necessarily be dispensed with to make the transfer immediately effective are updated as soon as is practicable. This clause enables provision to be made about how such obligations are to be enforced, so the procedure is clear. I should note that provision may not include the creation of a criminal offence or the imposition of a penalty, but may confer jurisdiction on a court or tribunal. The Government believe that civil remedies rather than criminal offences better suit the nature of these obligations.
	On Clause 73, it is desirable to have a mechanism to have appeals or disputes mechanisms for each of the powers that the Treasury or the Bank of England has under the stabilisation powers. Clause 73 sets out that the share transfer orders, share transfer instruments and property transfer instruments can include provision for disputes to be determined. These provisions can confer jurisdiction on a court or tribunal or specified persons; for example, an appeal panel.
	It should be noted that whenever an exercise of stabilisation powers involves a determination of civil rights and obligations—protected by Article 6 of the European Convention on Human Rights—disputes must be determined in a way that respects the protections of Article 6, which provides for procedural fairness. These provisions therefore put our compliance with Article 6 on the strongest footing, and I believe that they have been welcomed by the markets and by commentators.
	The noble Baroness asked why there is only the negative procedure. I believe that the parliamentary procedure for these regulations is common. They have been considered by the Delegated Powers and Regulatory Reform Committee to be appropriate.
	In summary, both these clauses are workmanlike provisions, and I believe that they are essential to the efficacy and fairness of the powers. I therefore ask the noble Baroness to allow these clauses to stand part of the Bill.

Baroness Noakes: Is it expected that statutory instruments containing enforcement and dispute powers will be issued soon? Or do the Government intend to wait until the exercise of the special resolution regime? Will they be generic, to sit there, or will they be specific? I did ask when we might see drafts, and so on.

Lord Myners: It is my understanding that they will be specific.
	Clause 72 agreed.
	Clause 73 agreed.
	Clause 74: Tax
	Amendment 119
	 Moved by Baroness Noakes
	119: Clause 74, page 38, line 11, after "Regulations" insert "or an order"

Baroness Noakes: In moving Amendment 119, I shall also speak to Amendment 120. For the convenience of the Committee, I have grouped Clause 74 stand part with these two amendments.
	The Delegated Powers and Regulatory Reform Committee pointed out that there is a Henry VIII power in Clause 74 (7). This power, because it involves taxation, involves parliamentary process in the other place only. The Bill provides in subsection (7) that it is subject only to the negative procedure. The Delegated Powers Committee was clear that if both Houses had been involved, it would have recommended the affirmative procedure, and it invited the Treasury to consider that point.
	I have tabled the amendments to get the views of the Treasury and the Government on this; I do not seek to interfere in the privilege of the other place by tabling the amendments. The Minister will be aware that the Delegated Powers Committee reported long after the Bill had completed Report stage in another place, and this is the only formal opportunity for us to seek the Government's response.
	I tabled the question on Clause 74 stand part to get a greater understanding of how the Government intend to use the powers in Clause 74. I hope that the Minister's speaking note will not simply fall back on his old friend "flexibility", because as usual the Explanatory Notes give no hint at all about how the powers might be used in practice. Of course, they are very extensive powers in relation to taxation, so it is reasonable to ask the Government to set out how they expect to use the powers, especially as the powers are not restricted to the transactions associated with the stabilisation power or the bank that is the object of the stabilisation power.
	The Banking (Special Provisions) Act 2008 contains no equivalent section. Have any issues arisen in practice from the exercise of powers under that Act? The Minister might like to say in what respects taxation has caused a problem in practice so as to lead the Government—in the case of Northern Rock, Bradford & Bingley, or Kaupthing Singer & Friedlander—to seek the extensive powers set out in Clause 74. I beg to move.

Lord Myners: I thank the noble Baroness for the clarity of her explanation. I shall seek to avoid using the term "flexibility", at least on this clause, although as a concept it has considerable merit when anticipating the extraordinary circumstances to which this legislation is relevant. However, I shall subserviate the term, should it appear in my speaking note on this clause, in favour of another one.
	This clause makes provision for dealing with the tax consequences of a transfer made under the special resolution regime in Part 1. Similar provision is included in the Banking (Special Provisions) Act 2008. The tax affairs of an authorised institution are likely to be extremely complex, and the tax implications of the transfers of shares, property and liabilities of such an institution are no less. It is therefore necessary to have a broad power to deal with the various types of tax charges or losses that would otherwise arise as a consequence of a transfer.
	I should stress that the purpose of the proposal is not to enable the Treasury to impose a new tax charge or to deprive a taxpayer of the use of any tax loss that might arise from having had their shares transferred away from them. That is a very important point. Rather, the intention is broadly to ensure that the tax advantages or disadvantages that are created because of the transfer can be neutralised and that continuity can be preserved, where appropriate.
	I turn to the amendments in the name of the noble Baroness, Lady Noakes, and the noble Lord, Lord Howard of Rising. I should stress that the purpose of subsection (7) is to ensure that we can, if necessary, update the list of taxes in subsection (2) by order. The amendments would give effect to a suggestion of the Delegated Powers and Regulatory Reform Committee that these orders should be made by the affirmative procedure rather than the negative one. Although the Government take the committee's views very seriously, in this instance we feel that it is not necessary to adopt the draft affirmative procedure.
	In determining the list of relevant taxes, we have sought to limit it to taxes for which it is likely that provisions may be needed. However, we recognise that circumstances may change over time, and the order-making power ensures that the Government will be able make the necessary changes so that that all relevant taxes are covered.
	I should point out to noble Lords that any regulations substantively amending provisions relating to any tax—regardless of whether it is one included in the provisions of the clause or one subsequently added by order—will be subject to the affirmative procedure. It is these regulations, dealing with amendments to tax provisions of any tax added to the list, that will clearly be of most substantive interest to Parliament and external stakeholders. Given that any substantive amendment to tax provisions will be subject to the affirmative procedure, we believe that it is appropriate to retain the negative resolution procedure for this order, relating to the addition of new taxes to the list of those covered by the clause. I therefore invite the noble Baroness to withdraw the amendment.

Lord Northbrook: In describing the point of the clause the Minister said that the tax effects should be neutralised. There would therefore not seem to be a case of financial privilege involved here. Could not the Delegated Powers Committee's recommendation, that the clause be subject to the affirmative procedure, be accepted?

Lord Myners: I take account of the noble Lord's observation, but it is our view that it would be inappropriate for the affirmative procedure to apply, for the reasons that I have given.

Viscount Eccles: I am a member of the Delegated Powers and Regulatory Reform Committee and I wish to ask the Minister a rather technical question. The committee's report on the Banking Bill was published on 18 December. I think it would be normal for it to expect a written reply but, so far as I know, it has not done so. Is it the Government's intention to send one?

Lord Myners: If there has been a failure of procedure, I apologise. If a letter is customary and was expected by the committee, I shall take whatever steps are necessary to ensure that it is sent. I am not sure how much longer I can use the excuse that I am new to the House. There is very rarely a day when I do not do something wrong—when I stand when I should be sitting or use a term that I should not use. On the other hand, I believe—and my noble friend Lord Barnett encourages me to believe—that there is a sign of progress. However, I apologise if we have fallen short in respect of procedure and I assure the noble Viscount that I will ensure that steps are taken to redress our failures.

Baroness Noakes: Of course, procedure is extremely important and my noble friend was right to ask the Minister when the Delegated Powers Committee may expect a reply from the Government. However, I am much more concerned about the substance.
	It is customary for the Government to take very seriously the recommendations of the Delegated Powers Committee and rare for the Government to reject them. They did so last June, during the passage of the Banking (Special Provisions) Bill, in relation to the nationalisation order, if I may use that shorthand, and whether the affirmative procedure should be used. Sound reasons were accepted at the time relating to timing, but this is of a different order.
	This matter does not require urgency; it is something where the Treasury is just saying, "We don't think we want to ask for power in advance and go through that affirmative procedure, which we find really rather boring. We'd like to just ram it through and hope that no one prays against it in the time available". There was no substantive reason for the Government not to accept the recommendation of the Delegated Powers Committee, other than they did not want to do so. That is a very unfortunate position for them to take in Committee and we will have to think about it very carefully before Report. The House will not be pleased to find the Government again setting themselves against the findings of the Delegated Powers Committee, which generally commands the support of the whole House, as its members are very experienced in issues relating to delegated powers taken in Bills. I do not believe that the Government have advanced any substantive argument for not following the recommendation, other than preference. I do not think that that will wash with the Delegated Powers Committee and it will not wash with these Benches either.
	I will not press the amendment today. I believe that we are expecting more from the Delegated Powers Committee fairly soon, and that will be even more interesting for the Committee to deal with. Today, I beg leave to withdraw my amendment but I should not like the Minister to think that this issue will go away.
	Amendment 119 withdrawn.
	Amendment 120 not moved.
	Clause 74 agreed.
	Clause 75: Power to change law
	Amendment 121
	 Moved by Lord Howard of Rising
	121: Clause 75, page 38, line 17, leave out "having regard to" and insert "in order to achieve one or more of"

Lord Howard of Rising: Clause 75 confers an extremely wide power, enabling Her Majesty's Treasury, by order, to disapply or modify the effect of any enactment other than Part 1 of the Bill or of any rule of law not in legislation for the purpose of enabling the powers in Part 1 to be used effectively.
	The reason given for this very wide power is that there is a real and significant risk that the authorities may not be able to effect fully a transfer which could lead to serious adverse implications for the public interest through risks to financial stability, protection of depositors or the public funds. There has been some narrowing of this clause since it was first introduced, but the power is still extraordinarily wide. The phrase "having regard to" is unnecessarily broad.
	Amendment 121 is modest and seeks to narrow the clause so that it is in line with the objectives of the special resolution. I shall discuss those objectives in greater detail when I speak later. In the mean time, all the amendment seeks to do is to restate how the powers can be used so that, as I have said, they are the same as the declared objectives set out in the Bill. Indeed, it would be perverse if alterations could be made to the law that were not strictly in line with the objectives of the special resolution regime. I beg to move.

Lord Davies of Oldham: With pleasure, I agree with the noble Lord. It is important to link the use of this power with the Bill's objectives. However, I do not take the view that a change of drafting along the lines suggested by his amendment is required. First, in using or considering the use of stabilisation powers, it is of course necessary for the authorities to have regard to the special resolution objectives, so the stabilisation powers are already targeted on achieving outcomes which best meet the special resolution objectives considered in the round.
	Secondly, the clause already requires the Treasury to have regard to the special resolution objectives when making an order under this provision. But the making of the order in isolation is unlikely to achieve special resolution objectives, as it is a power ancillary to the powers of the special resolution regime. It is the powers of that regime which are used to achieve its objectives and this power, which we are discussing here, makes changes to make the use of those powers more effective.
	The Government consider that the existing provision best reflects the underlying importance of the objectives in this context, but reconciles that with the supporting role which this clause plays to the main powers of the regime. I hope that the noble Lord appreciates that we are thinking along similar lines as regards the importance of linking with the objectives of the special resolution regime, but that is already in the Bill. Therefore, I hope he will feel that he can safely withdraw his amendment.

Lord Howard of Rising: I thank the Minister for his remarks. If he agrees with me, then why not draft the Bill so that what it says is in line with the objectives? Support for the objectives should be as the Bill says, and the Government should not use it, as they so often do, as an opportunity to try to take wider powers than are necessary or than the Bill says. I beg leave to withdraw the amendment.
	Amendment 121 withdrawn.
	Amendment 122
	 Moved by Lord Howard of Rising
	122: Clause 75, page 38, line 23, leave out subsection (3)

Lord Howard of Rising: I shall speak also to Amendments 123 and 124. Amendment 122 seeks to remove Clause 75(3). That subsection allows retrospective alteration to the law. Retrospective legislation is undesirable at the best of times, but in this instance there are practical reasons as well as constitutional ones.
	Much has already been said about the overwhelming importance of legal certainty in banking arrangements. The ability to legislate respectively, as set out in Clause 75(3), makes it extremely hard, if not impossible, to obtain the level of legal certainty necessary to carry out banking business. One of the reasons for London's competitive advantage in the financial services industry is the UK's well developed legal system. However, the legal uncertainty created by the ability to alter the law retrospectively, set out in subsection (3), would be so detrimental that any flexibility gained in dealing with banks in difficulties would be overshadowed by the damage to the legal system on which banks depend. How can banks arrange their affairs in an orderly fashion if the arrangements they make can be overturned retrospectively? It makes the taking of security and obtaining a clear legal opinion on that security virtually impossible.
	Comment has been made in another place that this legislation would apply only to a bank in trouble, but banks deal with each other, so action taken in using the special resolution regime could affect any bank because any bank could be counterparty to the bank falling under the regime and so be drawn into the net. In practice, the sort of situation and lack of confidence that this Bill seeks to avoid could be exacerbated, or indeed created, because any institution which has the slightest chance of coming under the special resolution regime would immediately be shunned. Healthy institutions would avoid transactions with a counterparty where there is a possibility, however remote, of that counterparty falling under a regime where the law can be altered retrospectively. It would be best if this subsection were removed from the Bill.
	Amendments 123 and 124 propose that agreements entered into prior to any retrospective legislation are still valid. That would go some way towards achieving the legal certainty which the banking industry needs. If subsection (3) is not to be omitted from the Bill, at least these two amendments give a chance to provide some order and certainty to arrangements entered into in good faith. I am sure that the Minister, with his experience, will see the impossibility of any commercial enterprise existing in a world where agreements can be torn up at will, let alone in the banking industry where, as has already been said, legal certainty is required to avoid the need for massive increases in capital or other serious disadvantages. I beg to move.

Viscount Ullswater: I must advise the Committee that if this amendment is agreed to, I shall not be able to call Amendment 123 because of pre-emption.

Lord Newby: At first sight, this is an extremely draconian clause. We have considerable concerns about it because it seems to give the Treasury blanket ability to change the law. However, having read the Treasury memorandum, it is very difficult to see how the operation of the Bill could take place without such a clause. In the case of Northern Rock and Bradford & Bingley, we have seen that the Government had to act very quickly. It was for that reason that, when the Banking (Special Provisions) Bill was going through your Lordships' House, we agreed to the negative resolution procedure. We saw the overriding need for speed in certain circumstances, which was borne out by both Northern Rock and Bradford & Bingley.
	We therefore accept the rationale for the generality of the clause. Subsection (3) again at first sight looks draconian because it talks about retrospective powers, but the Treasury memorandum sets out why such powers might be needed, and I have to say to the noble Lord, Lord Howard of Rising, that I do not believe the concerns expressed by the banking industry about the subsection. We are here talking only about what happens to a bank that has completely collapsed; we are not talking about the Government being able willy-nilly retrospectively to change the basis on which the generality of the banking sector can operate.
	Therefore, although we on these Benches have a general aversion to any retrospective powers, without this power and the whole clause, it would be very difficult if not impossible to effect the rest of the powers in the Bill, which I think Members on all Benches agree may be necessary.

Lord Davies of Oldham: I am grateful to both noble Lords who have spoken in this short debate, but especially to the noble Lord, Lord Newby. Save in one respect, he has already adumbrated the two main arguments that I was going to present on the issue. Of course the Government are sensitive about retrospective legislation, but it is necessity that drives our position. As the noble Lord, Lord Newby, said, provisions very similar to these in the special provisions Act were used to modify legislation to make the transfers of Northern Rock and Bradford & Bingley effective. That reflects the fact that we are not dealing with normal circumstances; we are dealing with crisis circumstances where some element of setting aside the bar on a retrospective dimension to the law is necessary.
	In our discussion of the previous amendment, the noble Baroness cited the deliberations of the Delegated Powers and Regulatory Reform Committee. We pay due regard to those, but so do the Opposition. They will have noticed that the committee made no reference to the retrospection of the power when it discussed Clause 75, so it did not raise for the committee the concerns to which the noble Lord, Lord Howard, gave voice when he moved Amendment 122.
	Amendments 123 and 124 are inappropriate. They would introduce considerable uncertainty into the effectiveness of the power provided by the clause, which is of great significance. A vote would involve a significant number of agreements with different parties. At the time of resolution, there is likely to be a considerable number of contracts entered into before the use of stabilisation powers, which will continue to subsist following the use of those powers.
	If we accepted the noble Lord's amendments, those types of contract would be covered by different law to those contracts entered into after the use of the stabilisation powers. If anything would create legal uncertainty, it would be that. It would jeopardise the success of the resolution, which could ultimately put off a private sector purchaser from agreeing to buy a failing bank. The amendment is inconsistent with the common approach to change in the law. When legislation is amended, it affects all relevant activities, not just those that commence after the legislation's commencement, otherwise, if a new tax were introduced for a certain type of employee or sector, it would not apply to those employees whose contract was signed before the tax came into force. We all recognise that that does not obtain.
	I appreciate the noble Lord's concern about any retrospective aspect to legislation. We should all be on our guard on that issue, and it is the job of the Opposition to probe when there are elements of it, but I hope that he appreciates the Government's defence of the issue and that the necessity for the clause to pass unamended is paramount.

Lord Northbrook: I draw the Minister's attention to what the Delegated Powers and Regulatory Reform Committee report states on Clause 75. It states:
	"We make no recommendation in relation to clause 75, but we draw it to the attention of the House, so that it might satisfy itself that the rather unusual context for which Part 1 of this Bill makes provision justifies the extremely wide power taken by the clause".
	The committee is inviting the House to consider the matter carefully.

Lord Davies of Oldham: I am grateful to the noble Lord, who is always scrupulous in his close attention to detail. He is absolutely right; he has given effect to that request from the committee. We have considered the matter and the Government have been subject to inspection and scrutiny on it, but I hope that we have also fulfilled the committee's requirement that we give adequate justification for our proposals in the clause.

Lord Howard of Rising: The Minister commented on the use of legislation in connection with Northern Rock. Can he explain how retrospective legislation was used to resolve the case of Northern Rock?

Lord Davies of Oldham: Part of the powers in the special provisions Act related to certain contracts concerning Northern Rock—I think that that is also the case with Bradford & Bingley. In the Bill, we are following previous example in those terms. That reflects the fact that, as the House will appreciate, the special powers regime—and in this case the Bill—must be able to deal with circumstances where significant and rather dramatic action has to be taken. This legislation is close to the way in which the transfer of both Northern Rock and Bradford & Bingley to the Treasury required that the shadow directorship provisions of the Companies Acts were disapplied. That followed a process not dissimilar to what we envisage in the clause. It does not quite fit the pattern of retrospection, but it does interfere with the common law.

Lord Howard of Rising: Was that used retrospectively?

Lord Davies of Oldham: It was not used retrospectively, but it did interfere with existing law and applied differently under the special powers. Clause 75 is concerned with that broad position. Perhaps when introducing the case of Northern Rock to the argument, I should have done so more carefully by saying how it used one law to take primacy over another—the law relating to the special powers of the Northern Rock provision. I concede that it did not quite fit the same category of retrospection.

Lord Howard of Rising: I find it rather odd that the Minister should use Northern Rock as an example when, plainly, it was not. He referred to contracts coming under different parts of the law and that a contract could be written under one part of the law, but that would then change. Actually, the amendment proposes that a contract or agreement written under the law should remain written under that law and that any subsequent changes to that law should not affect that contract.

Lord Davies of Oldham: I understand that position, but the contract is significant only in that it is effective. All I was indicating is that there is a precedent in situations in which action has to be taken: where something similar to Clause 75 obtains and it is necessary for us to apply the law in a rapidly changing situation that makes a particular demand on the authorities. As I have indicated to the noble Lord, if we were faced with a potential abuse of power, criticism would be voiced in very many quarters about it. However, we should balance what is without doubt an attribution of power to the authorities with the fact that they are dealing with an extremely difficult, and perhaps in the future often rapidly changing, situation in which they need to move with dispatch. I hope that that will satisfy the noble Lord and that he will withdraw his amendment.

Viscount Eccles: I shall intervene at this point rather than in a clause stand part debate, because the debate has ranged far and wide on this clause. My problem with it is that the Bill was intended to deal with what you might call ordinary times. Of course, banks have frequently failed, but not very close together. In the past 100 years, there have been a considerable number of bank failures, and I think we all agree that there should be a better scheme for dealing with infrequently failing banks. However, the Bill is in front of us at a time of crisis, which is colouring our view.
	I read the Treasury's memorandum to the Delegated Powers and Regulatory Reform Committee, all the while bearing in mind that the Treasury is a minimalist department that says the least that it can reasonably say to make its point. It does not say as much as it might be thinking. On this occasion, however, it wrote two and a half pages, which is a pretty long presentation. I think we would all agree with it when it says very firmly in the two and a half pages that sometimes the unexpected happens. The question then is how you structure an appropriate response.
	As has been said in this debate, the examples given in the two and a half pages are, frankly, unconvincing, because Northern Rock and Bradford & Bingley were both cited. However, the Treasury found its way through both of those without the benefit of a Clause 75, so we could repeat the terms of the 2008 Act and not get into Clause 75. There is the possibility that it might need to do something that meant that the ombudsman's powers to protect consumers were not prejudiced by a failing bank and the orders that followed. Then there is the disapplication of the 2006 Act to bridge banks. Bridge banks are the most significant feature of this Bill, and I should have thought that the possibilities that relate to bridge banks would have been thought through.
	My noble friend quoted the point made by the Delegated Powers and Regulatory Reform Committee. In making that comment, I think the committee was also conscious that a Bill that was originally intended for ordinary times was being brought forward in a time of crisis. The crisis has led to alternative actions. I suppose that if the Act existed, the FSA might have decided that the Royal Bank of Scotland should be taken into the special resolution regime. Is it really likely that at any time when there is a major problem, as there is today, the powers in Clause 75 would be confidently used? Surely, as has happened, another solution would be found in times of crisis. The case for this very wide power is unconvincing, and I firmly believe that the Treasury could find its way, as could the Bank of England, without the benefit of this clause. It might take a little more due diligence in each case, and possibly slightly more time, but I am sure that it would find its way through without the benefit of this clause, which should be withdrawn.

Lord Higgins: Parliament is always extremely reluctant to give the Executive powers that can be exercised retrospectively. I still have a little difficulty envisaging how these retrospective powers might be used. The Minister appeared to refer to Northern Rock and Bradford & Bingley, and then, I think, recanted and said that they were not an example of a retrospective use of the powers. Will he give us an example of how these powers might be needed and might be used? Another point relates to an individual working in a bank who has taken decisions on the basis of the law at the time. If the law is changed retrospectively, could the individual find that he has committed a criminal offence? Parliament has always been very reluctant to do anything that makes people liable criminally. Can the Minister be sure that individuals will not be affected in the way that I have described?

Lord Lyell of Markyate: I apologise for taking part in the debate now, not having been at the whole debate for medical reasons. I raise one point for clarification. The Explanatory Notes say that if these powers have to be used in an emergency—in other words, if they are brought into effect before there is an affirmative resolution, which is one of the protections against the use of these retrospective powers—they lapse if they are not affirmed at the end of the 28 days. Will the Minister make it clear—I hope he can—that if they lapse, they will never have been effective?

Lord Davies of Oldham: As the noble Viscount, Lord Eccles, was frank enough to confess to us, we have gone slightly wider than the amendments and on to the validity of Clause 75. I am obliged to reiterate the obvious point that there is bound to be some conflict between the public interest objectives of resolving the difficulties of a bank in severe financial distress on the one hand, and the provisions of legislation that are designed to work in relation to a normally functioning business on the other.
	Clause 75 is linked to the special provisions of the regime, and reflects the fact that the authorities are acting in the difficult circumstances of a failing bank. We are not looking for general retrospective powers; we are seeking only to facilitate the use of one of the stabilisation options. The scope of the powers might be severely constrained unless we had the ability to ensure that the action taken under those provisions had some paramountcy. That is why the clause is drafted in the way that it is.
	The noble and learned Lord, Lord Lyell of Markyate, asked me a specific question, but, in more general terms, where an entirely new regime is introduced in an area which is already populated by a complex and interrelated body of primary and secondary legislation and common law, new laws may come which contain powers that are not dissimilar to those under Clause 75. For example, the Safeguarding Vulnerable Groups Act 2006 and Section 148 of the Criminal Justice and Immigration Act 2008 reflect the fact that the legislation coming in is bound to affect in direct terms already existing legislation. All we are seeking with regard to this clause is exactly that position. There is not a great deal of retrospective quality to it, although it contains a retrospective element. But the necessity of the authorities to be able to act—

Lord Higgins: Does the noble Lord realise that if he reads Hansard tomorrow he will find that what he just said does not make sense?

Lord Davies of Oldham: I will try to be more succinct. I am trying to express that the authorities have to act at extremely short notice. We want them to have the powers to act in what is regarded as an emergency position with regard to a failing bank. In acting in those terms, they cannot be bound by legislation which constrains that legislation which is constructed to deal with more normal circumstances. We have debated one illustration for some time and I realise that I will not convince Members of the Opposition on this matter very readily. With regard to pensions, I indicated why we might not seek to interfere with the rights of the individual pensioner or to act along the lines of pension legislation requiring consultation with trustees, which might take months to effect, when action could be taken in the fairly immediate short term or the action is bound to fail.
	All I am arguing is that this is broadly the position as regards Clause 75. We cannot spell out every circumstance of every emergency because they are not foreseeable. From past practice, we have seen the necessity for rapid action. But, by definition, I do not have an example to quote under the special resolution regime because we have not had it. But we are trying to anticipate how we would deal with an emergency position. In those circumstances, it might be necessary for us to be able to act in the way in which the clause envisages.

Lord Higgins: The noble Lord seems to want to take powers to deal with a situation which he cannot envisage. He cannot give a single example of what the powers might be needed for and it is unwise to give the Government these powers to deal with any situation when they cannot envisage an example.

Lord Davies of Oldham: We are governed by the objectives of the Bill, the operation of the special resolution regime and the definition of the emergency. The noble Lord will freely concede that. If he is saying, "But you do not have a specific instance of a crisis to which this Bill might relate", of course we do not. We are trying to anticipate how we defend the public interest in the future. That is bound to fall foul of the noble Lord's request that I quote past examples chapter and verse.

Viscount Eccles: Does there not come a point when the attempt to get two belts and three pairs of braces is going too far? If, for example, this clause did not exist and the Treasury were to do something needing to be done at speed—I think we all accept that time will be of the essence—if it turns out that under existing law it has made a mistake, it will be a matter of compensation. It will not be a matter for which anyone will be hung, drawn and quartered. The problem with Clause 75, headed "Power to change law", is that it is going too far.

Lord Davies of Oldham: I will be brief, but if the noble Viscount thinks that we are going too far and that we should not guard ourselves against financial collapse, I hope he has carefully calculated the cost of our inability to protect the financial system in recent months.

Lord Northbrook: Will the Minister confirm that Clause 75(3) was used for Northern Rock and Bradford & Bingley?

Lord Davies of Oldham: I have accepted that point. I was seeking to illustrate that we were obliged in operating with regard to Northern Rock to act in a way which affected other legislation and that the Northern Rock position formed an element of emergency. But there was no retrospective quality to it and I have withdrawn that point.

Viscount Eccles: I do not think that the point the Minister made to me was right. We had a Statement yesterday. I cannot see why not having Clause 75 would prevent the FSA, the Bank of England and the Treasury proceeding to put a bank into the special resolution regime. However, some challenges might follow from that which would have to be met and dealt with.

Lord Newby: The noble Viscount, Lord Eccles, seems to be saying that the Government should not have this provision but that they should have the rest of the Bill; that they would act in a way which was in breach of the law, but that would not matter very much because people would take the Government to court and to the extent that they had broken the law, they would have to pay compensation. That is a very bizarre way to proceed.

Viscount Eccles: It may appear to the noble Lord, Lord Newby, to be a bizarre way to proceed, but it probably will happen anyway. Nothing that anyone can do will make it certain that every possibility has been thought of. There may be challenges to some of the things that have been done. Surely, in a democracy, it is impossible to give yourself, as I have said before, so many belts and pairs of braces that you will never suffer a challenge.

Lord Newby: I absolutely agree. One of the issues that we have been grappling with is, to a certain extent, the decision on how much should go in the Bill. As a general principle, I wear a belt.

Lord Howard of Rising: I do not accept the Minister's argument on retrospective legislation. Before going further, will he answer the practical question on how banks would be able to get clean legal opinions when Clause 75(3) allows retrospective legislation?

Lord Davies of Oldham: Let me emphasise the fact that we are trying to deal with circumstances which we cannot forecast in precise terms, but we have to ensure that the authorities can act effectively. To illustrate, what if a bank was facing rapid deterioration, the authorities were intending to act, and a fraud was discovered? They would then have act at extremely short notice to effect a transfer. The issue of due diligence would have to follow because action would have to be taken in such a way to ensure that confidence is sustained; otherwise the transfer would not be effected and the concept of the resolution regime would collapse. Under normal circumstances, of course the operation would not continue if there was a potential problem with the law, but it might be that the public interest is served by the effective continuation of the operation and resolution of the position, with the other factor being dealt with subsequently.
	Does the power undermine clear legal opinion? No, it does not. It will not be used to modify the provisions of the Banking Bill, and the Treasury will not use it to amend the legislative safeguards provided. We are not taking a power to interfere arbitrarily with the legislation. When Ministers were pressed in a similar discussion in the other place, the Government amended the Bill to ensure that that could not happen. The Government are working hard with stakeholders and market participants to design appropriate safeguards to cover the real problem of partial transfers, the nub of a very difficult situation. We are of the view that it would not be appropriate for this clause to be used to amend the safeguards we are putting in place. We are responding on whether a clear legal opinion on this legislation should be developed, and we defend Clause 75.

Lord Howard of Rising: Can the Minister confirm that this clause would not be used to change contract law?

Lord Davies of Oldham: As the noble Lord knows, I am no lawyer. I am therefore reluctant to leap to the Dispatch Box with a categorical response. We were pressed in the other place on how we would use the clause, and we gave the assurance that I am repeating now. The Treasury has no intention of using the clause to amend the legislative safeguards which the Bill provides for the procedures. I hope the noble Lord will accept that that is about as far as he can press me on the matter.

Lord Forsyth of Drumlean: I have listened carefully to the Minister's argument for the clause—that it is needed for unforeseen circumstances which he cannot describe to the Committee. Given that his argument rests on the premise that something which he cannot describe might arise where these powers might be needed, how can he give a commitment in respect of the Bill? If his argument is founded on that principle, how can he selectively choose?

Lord Davies of Oldham: As I indicated, we were pressed on this in the other place and we sought to establish that we have not introduced the clause in order to give an overriding power to amend and disregard other aspects of the Bill. I am seeking to reinforce that assurance. The special resolution regime and its safeguards are set out in this legislation. When an emergency arises in a complex legal environment, it may be necessary for the authorities to act in accordance with this Bill, which will then be an Act, even if it runs counter to other legislation that was conceived in rather more normal times. That is the nature of the emergency of failing financial institutions, and it forms the basis of this legislation. I am sure that the noble Lord, on principle, supports it.

Lord Howard of Rising: The noble Lord has given us his usual brilliant and long explanation, but it is completely unsatisfactory. I will be returning to the issue on Report. In the mean time, I beg leave to withdraw the amendment.
	Amendment 122 withdrawn.
	Amendments 123 and 124 not moved.
	Amendment 125
	 Moved by Lord Howard of Rising
	125: Clause 75, page 38, line 42, leave out subsection (8)

Lord Howard of Rising: Amendment No. 125 seeks to leave out Clause 75(8). Subsection (8) proposes that orders can be made under this clause without the need for them to be laid before Parliament for 28 days, not counting periods of dissolution, prorogation and adjournment. To deal with difficult and unforeseen circumstances, Clause 75 seeks immense powers, including the power to change laws as set out in subsection (1), and to amend them retrospectively, as we have just been discussing. Whatever one's views of these powers, the only way in which they could possibly be acceptable is if they have to be approved by Parliament. It is unacceptable that these immense powers should be used without the consent of Parliament.
	If an order is made under Clause 8 at the beginning of the Summer Recess, there will be no need for it to be considered by Parliament for nearly four months. That is bad enough, but subsection (8)(d) allows a new order to be made if an order under this legislation lapses. As far as I can see, there will be nothing to stop new orders being made ad infinitum, thereby making a nonsense of the requirement for parliamentary approval. Furthermore, paragraph (c) provides that any action taken under an order which is not subsequently approved by Parliament is not invalidated. In fact, the approval or disapproval of Parliament would no longer matter. Power would have been transferred from Parliament to the Executive. I hope that that is not the Government's intention, and I have no doubt that the Minister can confirm the position. However, it is what the proposed legislation says that matters, as it is the legislation that provides the criteria for government action. If the criteria were simply the comments made by Ministers in Hansard, then incidents such as an old man being arrested for intervening at a Labour Party conference or a lady being prevented from reading out the names of the fallen in Iraq would never have occurred. There are many other examples of the misuse of legislation.
	I urge the Minister to consider most carefully this amendment, so that we do not fall into the trap of providing a future unknown Government with the power to override Parliament and create a form of totalitarian society. Aside from the constitutional issue, subsection (8) adds to the difficulties of banks being able to enjoy certainty in their legal arrangements. If the Treasury can make an order without the consent of Parliament, it will almost certainly mean that any legal opinion given to banks in the course of their business will have to be qualified. That qualification may well mean that this Committee's good work on enabling set-off and netting arrangements, so that a clean legal opinion can be given, has been wasted. I beg to move.

Lord Higgins: Can the Minister tell us whether there is any precedent in legislation for a clause of this sort? Although it seems to allow orders to be made and subsequently to lapse, what is done in the mean time and without approval can apparently persist just the same. I cannot recall, in the past 40 years or so, seeing a clause of this sort, or statutory instruments being allowed to be used in these ways.

Lord Davies of Oldham: I recognise that this is a challenging area for legislation, but we are seeking to deal with a challenging situation. The Government think that this provision is important because there may be circumstances in which a transfer needs to be made at very short notice indeed. It is therefore necessary to modify aspects of legislation in order to make it effective. We are talking about emergency circumstances. In such circumstances, any prior requirement for each House to approve a draft order before it came into force would cause delay during which time the authorities would not be able to address the emergency of the failing bank. The repercussions of this might be disruption in the financial markets. It might place public funds at unacceptable risk, and it might exacerbate financial instability. Surely recent experience has taught us that this is a real possibility. Events move quickly, and the authorities have to act quickly.
	Of course I accept the Opposition's criticisms that this does not fall into the pattern of straightforward, normal legislation. It seeks to deal with potential emergency circumstances. Under the envisaged 28-day procedure, however, the order will be subject to a full debate in this House and the other place. It will need to be affirmed by resolutions in both Houses in exactly the same way as the draft affirmative procedure. The only difference is that instruments under the former procedure can come into force earlier. I could understand noble Lords' reservations about this power if the Bill were about normal circumstances and Clause 75 related to normal circumstances. However, we are dealing—might be dealing—with issues of such significance and such emergency that prompt action by the authorities is necessary. That is why this provision is in the Bill.

Lord Higgins: I asked a simple question about whether there is any precedent whatever for the form of words that we see here relaxing the normal arrangements made. Given the form of words, an order can be made—one understands that it may be urgent—and then lapse. However, the clause says that, meanwhile, the situation that was created remains the same. It is left, so to speak, hanging in time without anything attached to it. That will not help the noble Lord. He will have got the urgency, but then the order will have lapsed, and what he wanted to achieve will not have happened except in that particular period of time. He will have achieved nothing in the long term.

Lord Davies of Oldham: On the contrary, one of two situations may obtain. It may be that Parliament reaches a judgment that the action was unnecessary and unjustified, and the action therefore lapses; or it may be that Parliament considers the authorities to be completely justified in the action that they took. Those two situations are the subject of parliamentary judgment. Of course it will happen after the authorities have acted, but Parliament often reaches its judgments in just such a way. Parliament does not dictate to the Government and the authorities: it keeps their actions under scrutiny and provides the legislative base on which they act. That is what the Bill seeks to do.

Lord James of Blackheath: Does the Minister agree that the hazard in the signing of a statement of affairs in this situation is enormous and carries with it a penalty of a seven-year summary sentence? In the circumstances, will the Government expect and require that any statement of affairs supplied in this matter—bearing in mind the speed at which they are likely to have been produced and the risk of hazards increasing—will always be required to be signed by at least one licensed insolvency practitioner as an endorsement?

Lord Davies of Oldham: If I am going to bob up and down and answer every question, I shall be fairly vigorous. I shall take that point on board.

Lord Lyell of Markyate: The Committee will appreciate that we are in somewhat uncharted waters—and in a sense the Government are using that argument. They are saying, "Here we are without a chart. We might think it desperately important to do something immediately and we must be allowed to do it". But we live in a country which is governed by the rule of law, and it is important to go back to those basic principles. The legislation provides that we should give the Government powers which they will not have until they choose to lay an order. So they can act on something which is not the law until they instantly state that it shall be the law and until Parliament has had a chance to consider it.
	The Minister said that Parliament may think that it was a good idea and approve it, which is all well and good. However, if Parliament said that it was a very bad idea and disapproved it, it would still remain the law. Consequently the Government will be able to rule absent of anything which is the law in the way that we understand it. We understand law to be either the common law or statutory law, but this will not be statutory law except by completely changing the notion of our statute so as to enable the Government to do what they like. The danger, which we ask the Government to reflect on, is that it will lead to a great deal of concern and lack of confidence.
	My noble friends asked whether it would be possible for people to get sensible legal advice on what is likely to happen, and the legal profession and others elsewhere will be racking their brains in trying to decide what kind of circumstances the Government will use. No doubt in coming days the newspapers will come up with some suggestions, and the Treasury may think up suggestions which it has not at the moment passed to Ministers. However, there is a danger of uncertainty in the financial world and there are real strengths in government according to law.
	It is questionable whether the problem we are in is due to a lack of powers for the Government immediately to do as they like. It is certainly not my impression that the mess we have gotten into—whether it be partly global, partly local, or partly to do with this country—is a result of the Government not being able to snap their fingers and have something done. There is therefore a strong argument for sticking to our constitutional principles, which are embodied in the European convention. The convention is mentioned as something that we should seek to abide by, at least in regard to property rights and so on—so far, so good—but we must remember that it is in many ways a safety net. Until now we have lived in a country with higher standards than that, and we are proposing to abrogate those standards. That is why we are asking the Minister to think again.

Lord Forsyth of Drumlean: My noble and learned friend has put far more eloquently and with far more knowledge of the law the points that I wanted to put to the Minister on my reading of the clause. I am trying to think of circumstances that might pertain to it. These are the powers of a medieval monarch; this is Alice in Wonderland stuff, where the law is what I say it is if I am the Executive and, if Parliament subsequently disagrees with me, that is tough. That is how it was. If the Minister is not able to give us an example, the clause seems disproportionate; it seems a very big sledgehammer indeed and creates a horrendous precedent. I wonder whether the Minister might not go back to his officials, who are obviously enthusiastic about ensuring that they cover all the bases, and consider whether it might be possible to achieve the objectives without going quite so far in what is nothing more than a grand by-pass of Parliament clause with considerable consequences.
	On my reading of this, it is possible to keep running the order over a recess, as my noble friend said from the Front Bench. If there is some dire emergency—some dire national crisis—that requires immediate action, it is possible to recall Parliament. If the order provides for 28 days, I do not see why it is necessary to have this renewal of the period, which effectively means that Ministers can govern by fiat, secure in the knowledge that there is no accountability whatever. Not only is there no certainty, but there is no accountability. This is the most extraordinary clause. I can only think that it was written by officials who had perhaps not given sufficient concern to the role of Parliament and, as my noble and learned friend said, to the importance of maintaining the rule of law, which is fundamental to our whole way of life.

Lord Newby: There are more or less acceptable bits of subsection (8). If you are bringing a bank into the regime at the beginning of August and feel that you have to use some of the powers in Clause 75, you would do it under an order and, as paragraph (b) of subsection (8) states, you have 28 days after Parliament returns to get the order approved. That does not seem draconian or untoward; it seems sensible. In reality, the likelihood of Parliament being recalled purely to approve an order under this clause is not practical politics.
	However, paragraphs (c) and (d) seem odd. If, as paragraph (c) states, the fact that an order has lapsed does not invalidate anything that you have done, by definition virtually everything that you are going to need to do will have to happen very quickly, so you will have done it. Therefore, paragraph (c) is very strange. I take the point about paragraph (d). What is to stop the Government reintroducing an order? Again, in practical politics, it is highly unlikely, but the provision states that if an order lapses it can be reintroduced. If the Government do not put it to a vote, any action taken under it cannot be invalidated and you could keep going round that roundabout time after time.

Lord Davies of Oldham: This is not my amendment, so I am not summing up, but I shall respond. Let us not be too general in our arguments. This power is circumscribed by the earlier parts of the Bill defining the situation in which these powers may be applied. They are limited. Within that framework, the Government are seeking a power that will ensure that we can take action on a failing bank that is a threat to the financial system. Within the framework of this legislation, we can take action to deal with an emergency that we cannot describe fully and in detail, but we know the cost of loss of confidence in the financial system. The potential necessity for the authorities to act with great rapidity on a failing bank is the framework within which these powers are sought. There should not be delay because of consideration of other legislation.
	Earlier, I introduced into the debate the fact that one or two other Acts of Parliament were passed against a background where it was recognised that they were being introduced in an area where there was existing legislation and that they took precedence over it. I heard what the noble and learned Lord, Lord Lyell, who has a distinguished record in the law, said. I am merely indicating that we are seeking these powers for circumstances that are clearly prescribed in the Bill, and the noble and learned Lord ought not to generalise too far in his representations.

Lord Forsyth of Drumlean: Although I do not like it, I do not have a problem with the Minister's description of this provision. However, I do not see why it is necessary to be able to extend an order beyond the 28 days. I have particular problem with why, if Parliament chooses not to approve an order, it is necessary for the original decision to stand. As my noble and learned friend pointed out, that seems to create a third area of law that is neither common law nor statute law, but law by ministerial fiat. That seems very dangerous and out of all proportion with the problem. If the Minister could explain why it is necessary to have that, we would be less concerned.

Lord Lyell of Markyate: The Minister was kind enough to refer to what I said, but he said that I was talking in great generalities. We are talking about the banking and financial systems of the United Kingdom, their stability, public confidence in their stability, the protection of depositors and the protection of public funds. I cannot think of anything in relation to the financial system in all its huge and broad effect that is not covered by those phrases. It is not as though we are talking about a narrowly defined structure within which this remarkable power is right. We are talking about the Government's powers to do anything that they like in the entire world of public and private finance. I am told that that is just a generality, but the Minister's argument turns on him.

Lord Howard of Rising: Is it possible for the 28-day period to be extended just like that?

Lord Davies of Oldham: When Parliament is sitting, it will consider whether the position is acceptable. If Parliament rejects the order, it is inconceivable that the Government would reintroduce it in defiance of the will of Parliament, so that is not the case. The issue with regard to the continuation relates to an emergency action having been taken and Parliament not sitting within the period. Twenty-eight-day orders are not common, but they are not unknown. They exist because it is recognised that there are actions by authority that ought to be subject to early parliamentary scrutiny and concern. That is why they are limited to 28 days. The only circumstances in which there would be an extension would be if they could not be considered in that period.
	I am sorry to belabour the point with the noble and learned Lord, Lord Lyell; he knows how much I respect him in these matters. We have dealt with matters with regard to the law in the past. I have never felt that my responses have been entirely satisfactory to him and I feel the same way now. However, I emphasise that we are talking about a power that can be exercised only when a particular institution is entering the special resolution regime. That is the governing position with regard to the other clauses in the Bill. We have clear strategy triggers in the Bill which set up this position. We therefore expect this provision to be exercised only in the most exceptional conditions.
	I hear what the noble and learned Lord says: it goes without saying that the rule of law and democratic traditions are the best safeguard for a financial system operating in any society. However, there can be threats to a financial system which have very little to do with the law, the ethics or the ethos of that system. Things can go very badly wrong. They have gone very badly wrong in very recent experience. This Bill seeks to provide, as best we can, that such eventualities cannot recur with regard to a failing financial institution. That is the limiting framework in which these powers will be taken. I hope that he will accept the Government's good faith in this matter.

Lord Forsyth of Drumlean: I have the greatest respect for the Minister; he is a former Member of the other place and I know that he has great respect for Parliament. However, he has not addressed the fundamental issues. He keeps saying that these extraordinary powers would be used only in exceptional circumstances. However, he needs to explain why he needs them and he has not done so. Granted, there might be exceptional circumstances and, granted, Parliament might be in recess—I take the noble Lord's point that recalling Parliament is no small matter—but he is arguing for exercising these extraordinary powers in very serious circumstances. Would it not be sensible to take this provision away and think whether it might be possible to achieve his objectives without creating what I believe is an extraordinary precedent in this clause? I cannot believe that it is beyond his wit in guiding his officials to come up with a rather more sensible and less draconian way of approaching the problem, which I quite see could arise where there was a crisis in an institution.

Lord Davies of Oldham: I am grateful for those remarks, although, as ever with the noble Lord, Lord Forsyth, his invitations are to be accepted with care. The thought that I, my officials and my noble friend the Minister would not take note of this significant debate is absurd. Of course we recognise the significance of the points raised. I apologise for my inadequacy in assuaging all doubts. We will consider the matter further, but I hope that the noble Lord will withdraw his amendment today.

Lord Newby: When the noble Lord considers the matter, might he find that an easy way of dealing with the concerns about the potential abuse of the law would be to delete paragraphs (c) and (d) of subsection (8)?

Lord Davies of Oldham: The noble Lord made a pretty substantial argument to that effect earlier and I will of course consider it.

Lord Howard of Rising: I thank all noble Lords who have spoken in this debate. As we still have the clause stand part debate to come, I beg leave to withdraw the amendment, bearing in mind that I will return to the matter later.
	Amendment 125 withdrawn.
	Debate on whether Clause 75 should stand part of the Bill.

Lord Howard of Rising: This clause, as I am sure we have all realised by now, should not stand part of the Bill for two good reasons. The practical one is that it will create serious difficulties for the banking industry. We may dislike the banking industry but it has been, and remains, a contributor to the economy of this country. I spoke about the problems that this clause will create for the banking industry when we debated previous amendments.
	The second reason, which we have already touched on, is constitutional. I have spoken to various amendments to Clause 75 but the truth is that the clause should not be in the Bill. However difficult it may be to cope with a serious banking failure, and however much flexibility might be required for that purpose, that is insufficient reason for surrendering the ability of Parliament to call the Executive to account. In spite of what the Minister has said about the powers being very narrow and specific, they are not, as my noble and learned friend Lord Lyell pointed out.
	At the risk of repeating myself, let me explain why there is a movement of power from Parliament to the Executive. Subsection (1) of Clause 75 allows any law, except this one, to be amended for the purpose of enabling the powers in Part 1 of the Bill to be used effectively. The definition of "amend" is set out in subsection (4). If one examines the special resolution objectives, for which these powers are to be used, one finds that it does not take much imagination for those objectives to be interpreted broadly enough to allow an unacceptably wide range of laws to be changed. For example, Clause 4(5) provides that objective 2 is to protect and enhance public confidence in the banking system. That means that if there were media speculation and comment on the state of the banking industry or the state of an individual bank, it would be feasible to use this legislation to introduce press and television censorship. Your Lordships may think that this is a little far-fetched, but it is perfectly possible. That is just one example of what could be done under this legislation.
	There are many occasions, as I commented when speaking to Amendment 125, where the law has been broadly interpreted to suit government requirements. I am sure that your Lordships can think of many instances where the Government have used their power in a way not thought of when particular legislation was introduced.
	Subsection (3) of Clause 75, as we have already discussed, allows for retrospective legislation. The difficulty that the clause creates for banks has already been pointed out but, again, it is possible to interpret the clause very broadly. The law in Great Britain gives citizens the ability to go about their business, secure in the knowledge that there is a clear set of rules on what is allowed and what is not. They have the protection of the rule of law, as my noble and learned friend pointed out. In a democratic society, it is unthinkable that this certainty of where one stands within the law can be removed at will.
	Subsection (8), as we have already discussed, enables Parliament to be completely ignored when the power is used to amend the law and to change it retrospectively. I remind your Lordships that subsection (8)(b) effects this by allowing 28 days for an order to be approved by Parliament; if the order lapses, subsection (8) allows a new order to be made. The Minister said that if the order were rejected by Parliament, it would be unlikely to be re-presented. That does not mean to say that the Government could not allow the order to lapse and then simply introduce it again so that, by stringing a number of 28-day periods together, they could ignore the views of Parliament.
	Subsection (8)(c) states that, even if an order is disapproved of by Parliament, nothing is invalidated that was done under it. Together, subsections (1), (3) and (8) enable the Government to ignore Parliament completely—subsection (1) by allowing the law to be amended, subsection (3) by allowing retrospective change of the law, subsection (8) by allowing orders to be made at will and subsection (8)(c) by allowing for the force of the law to apply to an order even if it lapses. But it is for Parliament to approve legislation; it is not for the Executive to change Parliament's decisions at will and without its approval. However much flexibility is required to deal with banking stability, that does not justify sacrificing the supremacy of Parliament and all that that can entail.
	In any event, if a serious problem arose, there is nothing to prevent Parliament from being recalled, as my noble friend Lord Forsyth suggested. To say that it is difficult and expensive to recall Parliament and that, for that reason, one should surrender democracy, is absurd. The Northern Rock legislation was pushed through both Houses far more quickly than any deal formalising a bank coming into the special resolution regime could possibly be signed, sealed and delivered.
	Clause 75 turns upside down centuries of effort and sacrifice to create a free society governed by the rule of law and the democratic process. Even by the standards of this Government in recent years, Clause 75 is appalling. It is shocking that it has even been introduced to Parliament.

Lord Lyell of Markyate: I support what my noble friend has said from the Front Bench. I recognise, as the Government say, that we are in very difficult waters, but they are made more dangerous by abandoning these profound and longstanding principles, particularly regarding retrospection. I ask the Government to think most carefully again. The matter is bound to arise in the press before the Bill has finished its course. It is extraordinary that the Minister has not been able to think of a single example. People will think of examples. They will probably also see that there are other ways of resolving them, as my noble friend Lord Eccles said so eloquently a few minutes ago. Therefore, this is the moment to ask the Government to say that they will take stock. We are sure to come to this on Report. Before then, we need to know that we will be given much more satisfactory answers before we can allow the matter to proceed.

Lord Davies of Oldham: I thought that we had exhausted all the arguments before we reached the clause stand part debate, but I suppose that reiteration never did anybody any harm. The noble Lord, Lord Howard, effectively summarised all the points that have been made thus far.
	Perhaps I may make one or two things absolutely clear. The banking industry has not expressed its concern about the clause in the terms which were depicted in the noble Lord's contribution. We have been in extensive consultation with the industry. It was concerned that the clause might override the safeguards on partial transfers that we had put in place. We responded by amending the Bill so that we cannot do that—that provision is contained in subsection (4)(a). If the banking industry has the concerns that noble Lords have suggested—after all, it is an interested party—we await such representations.

Lord Forsyth of Drumlean: This is nothing whatever to do with the banking industry. The Bill of course affects the banking industry; this is to do with the role of the Executive and their accountability to Parliament and the rule of law. It is a parliamentary matter. I would be amazed if the banking industry had expressed a view on it. It is not about how it will affect the banking industry. We are at one with the Minister in wanting to give the Government the powers to deal with irresponsible banks and the consequence of them, but at issue here is a far more fundamental matter: the accountability of the Executive and of Ministers to Parliament and the role of Ministers in the creation of the law. That is why there is such concern on these Benches and even, I think, on the Liberal Benches.

Lord Northbrook: The British Bankers' Association states:
	"We remain concerned therefore about this general and retrospective power to amend legislation notwithstanding the scoping out of amendments to the Banking Act itself and related secondary legislation".

Lord Davies of Oldham: I was about to respond to the point on which the noble Lord, Lord Forsyth, commented. I would have asked how I could possibly respond to this debate without addressing the issue which he raised in regard to the clause and which has been raised many times in this debate. It was said that the banking industry is not interested in these issues. If we are talking about confidence in the financial institutions and the banking industry, it is valid for me to point out that we have received from the important interested parties limited representations that differ from the tenor of the argument that we have heard today.
	I reiterate that it is inevitable that there will be some conflict between the public interest objectives of resolving a bank in severe financial distress on the one hand and the provisions of legislation which are designed to work in a normally functioning business on the other. We are concerned to guarantee that the authorities can act in carefully circumscribed circumstances to deal with an emergency. I cannot give an illustration of such an emergency because we are seeking to guard against eventualities that may occur. We are not fighting as generals in the last war; we are trying to anticipate what is necessary in legislation to protect the financial system, because we are aghast at the consequences to the public interest of recent failures.
	The Government consider it crucial to take a power to amend the provisions of primary and secondary legislation and common law within this very narrow framework to make the provision work. Are we disregarding Parliament in doing so? The noble Lord, Lord Forsyth, suggests that the Government are taking on not even Henry VIII powers but those of a medieval king—it sounded like a medieval king called Alice, but I cannot recall that historical figure.

Lord Howard of Rising: There was a Queen Alice of Louvain.

Lord Davies of Oldham: Yes, but the noble Lord did not say "monarch"; he said "king". He then went on to describe Alice.

Lord Forsyth of Drumlean: I gave the Minister two metaphors. I talked about a medieval monarch and I said Alice in Wonderland. I was referring to "when I say what a word means, it means what I say". We have Ministers who will apparently say: "When I say what a law is, that is what it is and there is nothing that Parliament can do about it".

Lord Davies of Oldham: I am grateful to the noble Lord for elucidating that position. Far from us looking towards the powers of a medieval monarch, we are seeking to act in carefully prescribed circumstances of very considerable concern to the public interest. It is quite clear that the legislation defines the narrow terms within which the authorities can act. Are the authorities intending to act in defiance of the will of Parliament? No—what they are doing is exactly the opposite. They are saying that, if we act in this area, they will present before Parliament within 28 days the opportunity to make the judgment on whether that action was justified. It is not like a normal order, which could be laid a considerable time afterwards, but one which will be presented within 28 days.
	Anxiety has been expressed about two things. Why is that not absolutely prescribed as the only period? Because it might be that Parliament is in recess. It might be a judgment that Parliament should be recalled for reconsidering the order, but it might be a judgment of the vast majority of the nation, of all Benches in this House and all sides of the House of Commons, that to recall Parliament in those circumstances would be to exacerbate the loss of confidence in the financial system rather than increase it. That is something for which the Government would be responsible.
	If Parliament denied the validity of the order after 28 days of it being repeated, is it conceivable that a Government, having taken action in those circumstances, with the order having been rejected by Parliament, would reintroduce the same order? To what purpose would they do that, when the whole action of the Government is directed towards seeking to establish confidence in the nation? By carrying out such an arbitrary action, they would render the circumstances far worse.
	I am prepared to accept that we must look again at this clause. I accept the seriousness of the debate, but I hasten to mention another point. Noble Lords have suggested that it is not an important factor that the banking industry did not react to this clause and the other provisions of the Bill in quite the way that noble Lords have done—but nor did the Delegated Powers Committee. The noble Lord, Lord Northbrook, is right; he has quoted the committee accurately. It did not call attention to Henry VIII powers or the powers of a medieval monarch—or those of Alice in Wonderland. Did the committee suggest that? No, it did not.
	The Government should respond to this debate and look at the issue further. However, it may just be that noble Lords have slightly exaggerated the nature of the threat to our democracy represented by a Bill that seeks to deal with an emergency situation in carefully defined, narrow and prescriptive terms.

Lord Forsyth of Drumlean: I may be misunderstanding the words in the Bill. The Minister has just said that, of course if Parliament took a different view the Government would take account of that. However, the Bill says that,
	"the lapse of an order under paragraph (b) does not invalidate anything done under or in reliance on the order before the lapse and at a time when neither House has declined to approve the order".
	Does that not mean that whatever the Executive or a Minister have done will stand, regardless of what Parliament thinks? How in that case can the Minister say what he has just said to the Committee? This is what is causing such offence—or am I misunderstanding?
	I do not know what the Delegated Powers Committee or any other committee was doing, but I look at the words on the Bill that we are being asked to approve and that seems to be the meaning. The Minister has just said that it means something else. Can he help me with that?

Lord Davies of Oldham: I cannot help any further, except in saying that the noble Lord with all his applied intelligence is interpreting the measure his way and I, with my limitations, am interpreting it differently. We just have to disagree on that.

Baroness O'Cathain: I suggest that perhaps the Government should look at a redrafting of this provision if it causes such confusion. I am with my noble friend on this; the way in which he read it out indicates that when the decision has been taken on this order, that will be it. If that is not true, redraft it—or something.

Lord Davies of Oldham: I am grateful to the noble Baroness. She may recognise that we have debated this issue for a considerable period of time. As I have said in previous debates, of course the Government take seriously representations in Committee. We will take this issue seriously.

Lord Lyell of Markyate: I am very grateful to hear what the Minister said. This was the point that I raised when I apologised for speaking, having come late to the debate, in the very first intervention that I made. My reading of Clause 75(8)(c) is perfectly clear. If the order decides something or lays something down before Parliament has had a chance to consider it, which will be in a minimum of 28 days and might be three or four months or more, and if Parliament subsequently declines to approve the order, the Bill says that the order is not invalidated. I can see why for practical reasons it says that—but for practical reasons the Government want to override the long-standing constitutional principle against retrospection.
	The Minister seems to be in some doubt about what this subsection means. I do not know how he can possibly be in any doubt of it. I would hope that it would take only about 15 seconds for somebody in the Box to send him a message saying whether, if the House declines—

A noble Lord: Here comes the message!

Lord Lyell of Markyate: Yes, help is coming. The point is, if when the matter eventually gets to be debated by the House, either or both Houses decline to approve the order, do things that have been done under the order remain valid or do they lapse and cease to be valid? I am sure that the Minister is now in a position at least to give a straight answer about his understanding, and that provided by his officials.

Lord Davies of Oldham: I thought that I had already conveyed this point to the Committee, but I shall make it again. The 28 days is for bringing the order before Parliament within that period. Of course, if Parliament votes it down, the powers lapse. But the noble and learned Lord will appreciate that the real problem with the 28 days is that it is 28 days, provided that Parliament is sitting. We do not know when the emergency might occur, but the Government must act. The noble Lord, Lord Forsyth, started the hare running that it would increase financial confidence if Parliament was recalled to debate the order. Certainly, that was contended on the noble Lord's side of the Committee and I disputed that as an aid to financial confidence. Nevertheless, perhaps that would be the way in which the order would be dealt with. But certainly, if Parliament rejects the order, the powers lapse. The noble and learned Lord, Lord Lyell, must surely be satisfied with that answer.

Lord Lyell of Markyate: I do not think that the Minister is deliberately missing the point, but I am fearful that he does not understand it. The Bill says that,
	"the lapse of an order under paragraph (b) does not invalidate anything done under or in reliance on the order before the lapse".
	That would seem to mean that if something, such as a transfer, is carried out, which is one of the things imagined, of which the House disapproved—and the House disapproved of the order that gave the power to make that transfer—the transfer would nevertheless remain and could not be altered except by some other Act of Parliament. Is that the Minister's understanding? That is really what we are fighting about. That is the mischief of this retrospective provision.

Viscount Eccles: Before the Minister replies, could I return to Bradford & Bingley? It all happened between 27 and 29 September. The Minister knows that 28 days is a long time in circumstances such as those, not a short time. If that had been handled under one of the 28-day instruments, by the time the business was scheduled perhaps some 21 days later, there would have been no unscrambling of Bradford & Bingley. Therefore, the noble and learned Lord, Lord Lyell, is absolutely right. If you have one of these orders and it does something substantive and substantial, whatever Parliament then decides, what has been done cannot be reversed.

Lord Davies of Oldham: Of course, that is right. I assume that the noble and learned Lord, Lord Lyell, accepted that from my earlier remarks. We are talking about emergency provision and action. When an action has occurred it means that the authorities have taken responsibility for property and made very important decisions. In an emergency, by definition, they have taken a decision because of the threat to the financial system as a whole. Of course, the noble and learned Lord cannot be anticipating that 28 days later there would be an attempt to unscramble the actions taken. The aspect of parliamentary accountability is that the Government have to lay the order to justify and account for their actions and accept the criticisms of Parliament if it thinks that the Government and authorities have not acted properly and wisely, but there is no turning back of the clock.

Lord Lyell of Markyate: Just for myself, I am most grateful to the Minister for his clarification. He is all for retrospective legislation and that is the issue on which he stands.

Lord Howard of Rising: Again, I thank all noble Lords who contributed so much to this debate. I am grateful that the Minister is going to reconsider the clause and I hope that he will listen to the comments made by my noble friends. He might just bear in mind that a 28-day limit is rather like a speed limit: it is something that people go up to but never under.
	I would also like the Minister to confirm that the Government will not allow 28-day orders to lapse which then enable them to stick another one in saying, "Parliament didn't object to this so we can just get a new one". Perhaps when he is considering revising the clause he could look at the drafting to see what can be done to stop this draconian legislation being applied to any other matters. He keeps saying that it will be used only for narrow purposes but, as drafted, the law would allow all sorts of undesirable things to happen.
	Clause 75 agreed.
	Clauses 76 to 80 agreed.
	Amendments 126 and 127
	 Moved by Lord Myners
	126: After Clause 80, insert the following new Clause—
	"Holding companies: temporary public ownership
	(1) The Treasury may take a parent undertaking of a bank (the "holding company") into temporary public ownership, in accordance with section 13(2), if the following conditions are met.
	(2) Condition 1 is that the FSA are satisfied that the general conditions for the exercise of a stabilisation power set out in section 7 are met in respect of the bank.
	(3) Condition 2 is that the Treasury are satisfied that it is necessary to take action in respect of the holding company for the purpose specified in Condition A or B of section 9.
	(4) Condition 3 is that the holding company is an undertaking incorporated in, or formed under the law of any part of, the United Kingdom.
	(5) Before determining whether Condition 2 is met the Treasury must consult—
	(a) the FSA, and
	(b) the Bank of England.
	(6) Expressions used in this section have the same meaning as in the Companies Act 2006."
	127: After Clause 80, insert the following new Clause—
	"Holding companies: supplemental
	(1) In the following provisions references to banks include references to holding companies—
	(a) section 13(3),
	(b) section 16(1), and
	(c) section 75(5)(a).
	(2) Where the Treasury take a bank's holding company into temporary public ownership in reliance on section (Holding companies: temporary public ownership)—
	(a) section 20(2) applies to (i) directors of the holding company, (ii) directors of the bank, and (iii) directors of a bank in the same group,
	(b) section 25(2) applies as if references to a bank were references to a holding company,
	(c) sections 27 to 29 apply as if references to a bank were references to a holding company,
	(d) a share transfer may be made in respect of securities which were issued by the bank or by another bank which is or was in the same group; and a transfer—
	(i) shall be made by onward share transfer order under section 28 or by reverse share transfer order under section 29 (in addition to any that may be made under those sections as applied by paragraph (c) above),
	(ii) may be made under section 28 only in respect of securities held by (or for the benefit of) the holding company or a subsidiary undertaking of the holding company,
	(iii) is not subject to section 28(4),
	(iv) may be made under section 29 only in respect of securities held by a person of a kind listed in section 29(3)(b), and
	(v) is not (otherwise) subject to section 29(3),
	(e) section 45 applies as if—
	(i) the reference to a bank in subsection (1) were a reference to a holding company, and
	(ii) a reference to the bank in subsection (3) were a reference to the holding company, the bank and any other bank which is or was in the same group,
	(f) sections 65 to 68 apply, with—
	(i) references to the bank or the transferred bank taken as references to the bank, the holding company and any other bank which is or was in the same group, and
	(ii) references to securities of the bank taken as including references to securities of the holding company (so that, in particular, sections 65(1)(a)(ii) and 68(1)(a) include references to the earlier transfer of securities issued by the holding company),
	(g) other provisions of this Act about share transfer orders apply with any necessary modifications,
	(h) section 214B of the Financial Services and Markets Act 2000 applies (contribution to costs of special resolution regime - inserted by section 168 below), and
	(i) the reference in section 214B(1)(b) to the bank, and later references in the section, are treated as including references to any other bank which is also a subsidiary undertaking of the holding company (but not to the holding company itself).
	(3) A reference in this Act or another enactment to a share transfer order in respect of securities issued by a bank includes (so far as the context permits) a reference to a share transfer order in respect of securities issued by a holding company.
	(4) In so far as sections 47 and 60 apply in relation to orders treated as property transfer instruments by virtue of section 45(5)(b) or 46(5)(b) (including those sections as applied by virtue of subsection (2) above) the reference in section 47(1) to the property of a bank includes a reference to the property of a holding company and of any other bank which is or was in the same group.
	(5) Expressions used in this section have the same meaning as in the Companies Act 2006.
	(6) A reference to two banks being in the same group is a reference to their being group undertakings in respect of each other."
	Amendments 126 and 127 agreed.
	Clauses 81 to 86 agreed.
	Amendment 128
	 Moved by Baroness Noakes
	128: After Clause 86, insert the following new Clause—
	"Foreign banks
	(1) The Treasury may by order provide for the application of this Part to foreign banks in respect of their activities in the UK.
	(2) A foreign bank is an EEA firm qualifying for authorisation to accept deposits under Schedule 3 to the Financial Services and Markets Act 2000 or a Treaty firm qualifying for authorisation to accept deposits under Schedule 4 to that Act.
	(3) An order may disapply, modify or apply (with or without modifications) any enactment which relates, or in so far as it relates, to the UK operations of foreign banks.
	(4) An order—
	(a) shall be made by statutory instrument, and
	(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.
	(5) Provision made under or by virtue of this Part may make special provision in relation to the application of this Part to the UK activities of foreign banks."

Baroness Noakes: We are now moving to much less exciting territory. Amendment 128 would insert a new clause after Clause 86 to deal with foreign bank branches.
	We started our Committee consideration on the first day with a group of amendments where I sought to introduce asset-freezing provisions such as were used for the purposes of dealing with Landsbanki and Icesave deposits. Somewhat predictably, though disappointingly, the Government chose not to take the opportunity of accepting those amendments and complying with the report led by my noble friend Lord Newton of Braintree. That still leaves branches of foreign banks operating in the UK untouched by the Bill, which we do not regard as satisfactory. I have tabled a new clause after Clause 86 so that the Government can have the power to deal with the branches of foreign banks if they cause financial stability problems or otherwise need to be dealt with within the objectives set out in Clause 4. The drafting is modelled on the drafting for credit unions in Clause 86.
	I appreciate that branches are not as easy to deal with as whole organisations such as credit unions, which is why it would be necessary to take a very broad power to achieve an acceptable result. The exercise of such a power may well raise issues under EU law, but that would apply when a power was used, not when it was placed on the statute book. It would also affect how it was used. I tabled this to ask the Government why they are not dealing with the branches of foreign banks in this legislation given that we know they have caused problems in the past and are likely to do so again. I beg to move.

Lord Myners: The purpose of Amendment 128 is to apply the special resolution regime to foreign banks. As in our earlier debate on foreign banks, for the purposes of this debate, a foreign bank is one incorporated under the law of another jurisdiction but which operates in the UK through branches established here.
	I believe that the noble Baroness's intention is that the amendment should be focused on European Economic Area banks that have set up branches in the UK using "passports" under the EC banking consolidation directive. The Bill applies the SRR to UK deposit-takers only, although I should point out that this includes UK-incorporated subsidiaries of foreign-owned or foreign-headquartered banks. That approach is entirely consistent with European law.
	Under Community law, prudential regulation of a bank from one EEA state operating through a branch in another EEA state is for the home state regulator. Therefore, the home state regulator is responsible for taking the lead on resolving any difficulties with such a bank, including any branches that it may have operating in another EEA state.
	Indeed, the powers of the host state authorities are limited by Community law, and even if we sought to take powers to apply the SRR to EEA branches, the UK authorities could act on those powers only in highly circumscribed ways. For example, the share transfer powers have been developed for use in relation to shares and securities as defined in UK law and are therefore not directly applicable to foreign banks. Also, as discussed in last week's debate on foreign property, we are limited in the extent to which foreign courts will enforce any transfer order of foreign property within any foreign bank, even one which has a branch in the UK.
	As I also made clear when speaking about the amendments on asset-freezing powers, the extent to which a foreign branch has property in the UK within the reach of the UK authorities will be a matter of fact rather than law. For these reasons, both legal and practical, it is not beneficial to extend the powers of the SRR to foreign banks. However, we are of course aware that EEA banks operating in the UK through branches can have UK depositors and that this may give rise to a number of specific issues. This was clearly the case with recent events around the Icelandic banks. The UK Government have shown that we are prepared to take decisive action to protect savers, to ensure financial stability and safeguard the interests of the taxpayer.
	The UK authorities, of course, continue to work closely with other regulators and authorities within the EEA to resolve difficulties with EEA firms operating in the UK. Members of the Committee should also be aware that the remit of the Financial Services Compensation Scheme extends to branches of banks from other EEA states which have joined the top-up arrangements, as per the provisions of the relevant directive. Of course, UK branches of foreign banks from outside the EEA are authorised by the FSA and participate fully in the Financial Services Compensation Scheme.
	Nevertheless, I recognise that there are issues here which require a closer look. The Chancellor has already written to Commissioner McCreevy in Brussels, asking that the Commission work with the UK in reviewing the arrangements for branches and other cross-border banking entities. Of course, we are continuing to conduct our own analysis of supervisory changes that may be needed, not least through the review that the noble Lord, Lord Turner, in his capacity as chairman of the FSA, is undertaking to determine changes needed to UK and international banking supervision.
	It is important to remember, however, that any changes that the UK authorities determine to be necessary will need to be made in co-operation with our European partners, and not in a piece of purely domestic legislation such as the Bill. As far as the Bill is concerned, therefore, the approach taken towards its scope, combined with our existing powers, is the right approach to delivering the best results for financial stability and depositors. I therefore urge the noble Baroness to withdraw the amendment.

Baroness Noakes: Before I do so, the Minister said that he assumed that I was talking about EEA banks. The definition in proposed subsection (2) of my amendment refers both to EEA banks and treaty banks, and is therefore not simply confined to the EEA. The Minister's response was mainly in the context of EEA branches. I am sure that it is good to write to Commissioner McCreevy and wait for the European Commission to propose some action or a directive, but that is not the action that I would have thought that a responsible Government would take. Let us assume, however, that writing to Commissioner McCreevy is a good and constructive thing to do about branches of EEA firms. What, then, about branches of other banks that operate under the FSMA through treaty provisions?

Lord Myners: Although I referred at some length to EEA branches, which is an area of particular concern given the experience both of the Icelandic banks and of some of the Irish banks, I made it clear that arrangements existed in the Financial Services Compensation Scheme for non-EEA banks operating in the UK under FSA approval. I repeat that it is outwith the scope of the Bill to address issues of branches of foreign banks in the United Kingdom that do not have a legal form, and may not have assets, in this country. We would adopt a similar attitude of concern if a UK bank operating through a branch in another country outside the EEA was somehow brought within the ambit of a regime similar to the SRR.

Baroness Noakes: I never worry much about what other countries might do. The important thing is what the Bill is about: UK financial stability. The Minister answered in respect of the FSCS for foreign branches, but not in relation to the whole range of things. This issue may be less important in the light of what the noble Lord, Lord Eatwell—who is unfortunately not in his place at the moment—said on the first day in Committee: international moves are away from branch banking and towards the use of subsidiaries. If that happens, that issue will go away. I shall contemplate what the Minister has said, unsatisfactory though it is, between now and Report.
	Amendment 128 withdrawn.
	Clauses 87 to 92 agreed.
	House resumed. Committee to begin again not before 8.27 pm.

Agriculture and Food: Research Funding
	 — 
	Question for Short Debate

Tabled By

The Earl of Selborne: To ask Her Majesty's Government what plans they have for funding agricultural and food research.

The Earl of Selborne: My Lords, agricultural and food research has been in decline for a quarter of a century. We need to take stock of whether this is in the national interest. I hope that this short debate tonight will give us an opportunity to do just that. I start by declaring my interest as a farmer and my commitment to agricultural and food research as a past chairman of the Agricultural and Food Research Council, now subsumed into the Biotechnology and Biological Sciences Research Council.
	In the 20th century, agricultural and food research and development was a key contributor to the great achievements of agricultural production, particularly after the Second World War. To meet the needs of food security, production increased massively and productivity increased even more. By the mid-1980s, priorities had changed. Agriculture was seen as no longer such a key sector and, in my time as chairman of the Agricultural and Food Research Council in the 1980s, the Government of the day started on a round of closures of agricultural research institutes and experimental husbandry stations, a process that does not seem to have ended 25 years later. In the past five years, we have lost Long Ashton Research Station, Silsoe Research Institute, the Hannah Research Institute and much of the Horticultural Research Institute. There is currently a great deal of uncertainty about the future of the farming and food science LINK programmes.
	The challenges of the 21st century are different from those of the 20th century, but in many ways they are equally urgent. Global food security, the impact of climate change on agricultural production, the need to reduce water used for irrigation and the spread of animal diseases are all pressing issues of global importance to which agricultural research based in this country can and does make a significant contribution. There is a need to ensure that increased agricultural production—which is, after all, essential to meet the needs of a larger, more prosperous world population—does not lead to further adverse environmental impacts. Most people believe that, by 2050, if you take into account increased world population and consumption, global food production will have to double.
	The research needs of the UK agricultural sector are not identical to the global priorities, but they are compelling. The case for appropriate publicly funded research and development to support this sector is overdue for reappraisal. Many of the products of agriculture are public goods, which justify public investment in research. Although the industry is highly competitive, it is largely made up of micro-businesses that cannot individually fund and receive the benefit of private research.
	The key challenge for the farming and food sectors is to ensure that improved crop productivity can be achieved efficiently without adverse environmental impacts. We need to focus on where production gains are most readily and sustainably achieved. We need to ensure that we retain a competitive agricultural industry. We need to support those ancillary industries that support agriculture, such as crop protection, animal health, animal and plant breeding, agricultural machinery and many others. There are great opportunities for the agri-food technology industry in this country to sell more of its expertise and products overseas, based not least on the products of our publicly funded research.
	We need to ensure that our consumers benefit from competitively priced, high-quality food grown in our own country. While food security may not be the critical issue for us that it is in many other countries around the world, too heavy a dependence on food imports is surely unwise. Most of us recognise the very obvious benefits of regional production.
	Our national science base, our biological sciences and the environmental research programmes funded by the research councils, higher education funding councils and government departments are among the best in the world. However, when it comes to exploiting this underpinning science to meet the needs of the UK agricultural sector, we are missing out. Without adequate applied research focused specifically on the needs of UK producers or the infrastructure to support field research, we will miss the opportunities that this excellent basic and strategic research offers.
	I pay tribute to the National Farmers' Union for recognising in its campaign "Why Science Matters" just how great the contribution from publicly funded agricultural research and development has been and how critical it is to recruit a new generation of applied agricultural scientists. The Commercial Farmers Group has called for a new vision for UK agricultural research and development. I agree that the time is right to explore what that new vision should be.
	We need to get all interested bodies and funders of agricultural research and development, whether in the public or private sector, charities and levy boards, to come together to share their ideas on just what are the national objectives for agricultural research and then to agree how each can contribute to co-ordinated programmes. The Biotechnology and Biological Sciences Research Council has given considerable attention to the contribution that research can make to sustainable agricultural production, but it is essential that Defra and the BBSRC work closely together to determine what resources will be needed to deliver the national research needs. This has to be agreed before we lose yet more of our research infrastructure.
	Producers recognise the key role that research has played in the past, and could play in the future, for their economic survival and prosperity. Therefore, it is reasonable to ask the producers themselves—represented, I suggest, through the Agriculture and Horticulture Development Board—to take a leading role on behalf of the industry in developing such a new vision. Obviously, many other contributors need to be part of that debate—for example, the research councils, particularly BBSRC and NERC, agricultural departments, in which I, of course, include the devolved Administrations, universities, including the vet schools, the Food Standards Agency, the Science and Innovation Network within DIUS, the Technology Strategy Board and the agri-technology team within UK Trade & Investment, which is charged with helping us to export the expertise to which I referred. No doubt many other agencies would have a role in this discussion. Since the future of LINK has been in some doubt, there has been talk about establishing an agri-food technology platform. When the Minister responds to the Question, I should be interested to hear what progress, if any, can be reported on this agri-technology platform initiative.
	I understand that on 1 April Defra will merge its science agencies into the Food and Environment Research Agency, which I am sure will help the department to play its part in reassessing where our priorities lie for ensuring a thriving, sustainable farming sector. However, perhaps the best way for Defra to demonstrate that agricultural research will be taken seriously after 25 years of cuts would be to put the word "agriculture" back into the name of its research agency. Can we please have an Agriculture, Food and Environment Research Agency?

Lord Livsey of Talgarth: My Lords, I congratulate the noble Earl, Lord Selborne, on commencing the debate. He has a very distinguished career and his knowledge of research into agriculture and food is immense.
	In the space of four minutes it is very difficult to put over what a massive area this is. When the chips were down in the past and Britain was up against it in the First and Second World Wars, scientists, engineers and farmers responded magnificently to feed the people of these islands. They raised the self-sufficiency of home-grown food production from 40 per cent to 60 per cent and then, post-Second World War, to 75 per cent. That fantastic achievement was gained through co-operation and enlightened government policies with vision and commitment. Breakthroughs in plant and animal breeding enabled, through fundamental scientific research and technology transfer, very substantial increases in crop yields and animal production. The fundamental resources of land, labour and capital were put to work to feed the people of these islands. Now food self-sufficiency rates are back down to 60 per cent, and falling, in a world where the population will increase from 6 billion to 9 billion in the next 50 years. In fact, this reduction means that Britain now spends £23 billion making up the difference in the balance of payments. That must be a figure that the Treasury can get its head round and cause it to provide Defra with more funding.
	I am proud to have been part of the previous food production revolution, working on the land on farms in the 1950s and 1960s, with the fruits of research with ICI agriculture division and later in agricultural management education. What has shocked me in the past 20 years is the downgrading of the importance of farming to the nation. This has been accompanied by the asset stripping of fundamental objective agriculture research. Many research stations have been closed or sold off to multinationals and former MAFF and ADAS farms have been shut down. Plant breeding institutes have been sold and agriculture colleges and farm institutes have been closed. All were crucial for technology transfer and for producing a new generation of agronomists and farmers. In many parts of the UK the average age of farmers is now 60. One only has to mention the names of the National Institute for Research in Dairying, the Plant Breeding Institute at Cambridge, Wye College, Seale-Hayne College and the closure of seven veterinary investigation centres and many experimental husbandry farms, to name but some, to see what damage has been done.
	In the days of the EU grain mountains and surplus milk production, one could understand, but not forgive, the short-sightedness of ignoring the prospect of inadequate food security. Why did it happen? It was mainly due to drastic cuts in MAFF, and then Defra, funding. What must happen now is a massive reform of funding priorities where scientific research and development is restored to its rightful importance. The future challenges that will have an impact on farming and food production are legion—for example, climate change, flooding and drought, exotic diseases such as bluetongue and bird flu, problems with pesticides, animal feed utilisation with, for example, high-sugar grasses, the whole subject of GM, ensuring food security and increasing home-grown food production. Incidentally, the issue of GM will not be resolved until it is out of the clutches of the Monsanto corporations of this world. Scientific research in this field must be independent and objective and not driven by corporate greed. All these issues require substantial increases in Defra funding.
	Risk assessments and new technology must be watertight. Public, plant and animal health are incredibly important to the nation. The news of the creation of the Food and Environment Research Agency from within Defra and its science agencies is to be welcomed. The 45 per cent drop in real terms in Defra funding must be reversed. The fact that only £20 million is now devoted to farming and food R&D is unsustainable. Where is the vision among government policy-makers? An example is the current paucity of bee research funding, for example at Rothamsted, at a time when our bee colonies are dying off. Surely everyone can realise that pollination is absolutely crucial to food production.
	Finally, knowledge transfer must be resurgent and productivity must be increased. Defra must ensure a critical mass of scientists producing quality, independent innovation to ensure the survival of this country and its people.

Lord Cameron of Dillington: My Lords, first, I declare an interest as a farmer and landowner, and as a trustee of the Lawes Agricultural Trust.
	The Government Chief Scientific Adviser, John Beddington, has summed up the challenge for world agriculture by saying that by 2030, the world has to produce 50 per cent more food than it did in 2000, using less water, less energy, emitting fewer greenhouse gases and not despoiling the environment.
	That is a pretty tall order. But what is more important is that Britain has a key part to play in the delivery of this tall order. According to the IPCC, northern Europe is one of the few places in the world where global warming will actually enhance food production, so it is really important that Britain is properly engaged in playing its part. The UK must grasp the economic opportunity that this gives us, as well as our social and environmental obligations, and we must ensure that we do everything in our power to maximise our responsible production of food.
	The prime message that I—and I suspect everyone in this debate—wish to give the Government is that we must build back the expertise in our agricultural research capability. As the noble Earl indicated, over the past 25 years, 16 out of 20 research institutes have been closed or merged into a university. We must now support and exploit the world-leading capability and facilities that we have remaining.
	Certain vital scientific expertise is now in short supply—agronomy, plant pathology, entomology and soil science, to name but a few. We must build back a new generation of scientific competence while we still have those who can train it. We must motivate our scientists to engage with this major challenge of how to provide food for another 50 per cent more mouths.
	We also need to build back our agricultural extension capability—scientists formulating research of direct relevance to production problems encountered on farms on the land, and translating research findings, including near market research, into improved practices on the land. This involves scientists honing their communication and motivational skills, both here and across the world. This agenda and debate involves Defra, DIUS and particularly DfID. Scientists should be rewarded for improved outcomes on the land, rather than necessarily just for plaudits from their peers.
	We need a national strategy for where our investment in science and technology should be directed in the coming decades, and strategies for the protection of our soil and for the genetic improvement of our key crops—cereals, oilseeds, grasses and horticultural crops. That must surely involve the adoption of all available technologies, including GM. This is not the time for the GM debate, but I support the point made by the noble Lord, Lord Livsey, that we must distinguish between what one might call the Monsanto debate, where multinational corporations seem to be driving this agenda for profit, and the Government easily giving free access to drought-resistant maize in Africa, or nitrogen-fixing wheat across the world.
	There is also the need for a national strategy for our interactions with the developing world. It is not enough just to allocate funds to other organisations overseas and hope that this will deliver the required outcomes. This agenda used to be a real strength of the UK, and I believe that we can play this part again in the future.
	Above all, and in conclusion, we need a research strategy that provides the necessary leadership and resources to enable Britain to grasp this opportunity and play its part in overcoming the potential for massive world food shortages, if we and others do nothing.

Baroness Shephard of Northwold: My Lords, I congratulate my noble friend on securing this debate and on his eloquent and knowledgeable analysis.
	We are all conscious of the global financial crisis, but a number of factors are converging to create a global crisis for food security that is quite as serious as the global financial crisis and is made even more serious by that global financial situation.
	The statistics are stark. Each year, the world's population is increasing at a rate equal to the entire population of Great Britain. By 2050, there will be more than 9 billion mouths to feed in the world. At the same time, UN figures show that each year, drought, deforestation, and climate volatility are already taking out from food production an area equivalent to the size of the Ukraine. Thus, while we need to double food production by 2050, we will have to do so on a reduced area of cultivable land worldwide, and with fewer resources than at present. Climate change threatens production levels on existing land and will make some uncultivable. Worldwide water availability will certainly restrict output. The situation is therefore extremely grave.
	I am sure—I hope and believe—that the Government now realise that the world is not awash with food for us to import. Indeed, we should be helping the developing world to feed itself through aid and investment and, at the same time, increasing the domestic production of food that we can grow sustainably.
	Ten years ago, we produced a surplus of pork. We now import a third of all the pork that we eat. We ship in more bacon, lamb, eggs and chicken than we did 10 years ago. Our self-sufficiency in vegetables has collapsed. This is most emphatically not a protectionist point. Trade must play an important part in food security, but surely, given that 2008 will be recorded as the critical year when more than 50 per cent of the world's population became city-dwellers, we need to maximise our own domestic production.
	That means that there needs to be recognition from the Government that the production of food and food security are issues of vital importance, not only domestically but globally, and that there should be a shift in R&D priorities to help us produce more, with fewer imports. That realisation would sit ill with the 45 per cent drop in Defra R&D devoted to farming and food, but the Government could and should take a lead in redefining R&D's objectives in changing the priorities, becoming a stakeholder themselves and encouraging the industry to follow suit.
	It really is hard to think of an issue of greater importance than feeding ourselves and helping to feed the world. The primary duty of the Government is to provide security for its people, and it is vital that they recognise now the importance of reordering their research priorities to enable us to do that.

Lord Lea of Crondall: My Lords, may I ask the noble Baroness a question? I am sorry if I am being impolite in asking this now. In the common agricultural policy, we are obviously talking about reduced subsidy. Does this mean the opposite of that?

Baroness Shephard of Northwold: My Lords, I am sure that the noble Lord could not be impolite if he tried. I think that he will find, when he has the chance to read Hansard after the debate, that my request is that we should maximise those things that we ourselves can produce sustainably. That is my argument; I believe it is one with which he would agree and I am quite sure that the Minister will also agree.

Lord Taverne: My Lords, the noble Earl, Lord Selborne, has eloquently demonstrated the importance of agricultural research and he and other speakers have outlined the sad story of the decline in the amount of money that goes into agricultural research in this country.
	I have a simple proposal that would improve efficiency and more than double Defra's limited research budget at no extra cost to the Exchequer. Defra should stop spending the £30 million or so that it now spends, or used to spend, on subsidies for conversion to organic farming and transfer the savings to its budget for agricultural research. Although £30 million may not sound much in these days—millions are not what they used to be—it would make a very big difference.
	The subsidies have no rhyme or reason. Organic food costs more. Why? Not because organic farmers rook the public, but because organic farming is less efficient. The advocates of organic farming cannot have it both ways. If it is not less efficient, then they are exploiting the consumer. In fact, the evidence shows that, comparing like for like, overall yields from organic farming are between 20 per cent and 50 per cent lower than those from conventional farming, depending on the crop.
	With an extra three billion or so mouths to feed and a growing shortage of good agricultural land in the world, we have the crazy situation that the British Government spend some £30 million a year to promote the less efficient use of land. For what reason? I suspect that it is because they are reluctant to confront the very powerful and very successful organic lobby that represents a £1 billion industry.
	However, the organic movement is wholly founded on a scientific howler, whereby artificial chemicals are good and synthetic chemicals are bad—I am sorry, I should have said that the assumption is that natural chemicals are good and synthetic chemicals are bad. Every independent body that has examined the claims made for the virtues of organic farming has rejected them. Organic food tastes no better than conventional food when subjected to random blind tests. The Food Standards Agency has found time after time that organic food is no more nutritious; and a very carefully conducted Defra study found that organic farming is no better for the environment than conventional farming.
	I hope that the Minister will consider my suggestion. Ministers have always avoided the subject of this crazy subsidy when I have raised it in the past. My case is simple: stop spending millions on promoting inefficient farming. Spend it instead on vital research.

Baroness Byford: My Lords, I am grateful to my noble friend Lord Selborne for clearly laying down the challenges that the Government face in providing sufficient funding for agricultural and food research. Other noble Lords have spoken of the dramatic cuts which have resulted in the closure of research centres, with the loss of more than 100 scientists. I will not repeat the figures, but at best they are disturbing and, in truth, a disgrace. Perhaps I may remind noble Lords of our family's farming interests, of my membership of the NFU and of my presidency of LEAF.
	We live in a world which is seeing huge rises in the human population and the challenges that climate changes brings. It is clearly our responsibility to produce much more food—50 per cent more by 2050, as has been said—on less available land. I remind the Minister that there will be less land on which to develop food crops. Scientific knowledge has never been more important that it is today, yet the Government have reduced the amount of money available for this type of research. I cautiously welcome the decision to establish the new agency, but its success will depend on adequate funding, good management of the various projects that the agency commissions and undertakes, much closer working between government and private companies, and the sharing of information directly with farmers for implementation on their farms.
	There are gaps. Last year, the Dairy Science and Food Technology Forum produced a report drawing the Government's attention to the gaps in the UK's research and scientific knowledge-transfer base and highlighted areas that required action. The report runs to 12 pages and I shall send the Minister a copy.
	In his presentation to the LEAF conference last autumn, Keith Goulding expressed his concerns about the inadequacy of funding and the long-term loss of skills in research and advice on soil and water management. Has the Minister had discussions with the Biotechnology and Biological Sciences Research Council and, if so, have the Government been minded to commit more, or perhaps adequate, funding to this type of research? There are other research projects, such as the Campden food research station, which is well known to your Lordships.
	I hope that the new agency will link food and agriculture work closely. The agency should work with the farmers and organisations involved in promoting good farming practice and not simply reinvent the wheel. I point the Minister to the work being undertaken by, for example, the Game and Wildlife Conservation Trust at Loddington, Leicestershire, which balances commercial food with the preservation of wildlife, or the work of FWAG and my organisation, LEAF. I suspect that these and other organisations which promote good farm practice, based on sound science, will struggle financially in the crisis that is affecting all businesses.
	I hope that the new agency will look at the way in which it allocates its money. Government, private companies and the industry as a whole must look to new ways of collaboration and promote R&D in future years. We desperately need to attract new scientists. We have lost many in recent years and those who remain are, sadly, at the height of their careers and may retire soon.
	This has been a short but timely and worthwhile debate. I thank my noble friend for introducing it and I look forward to the Minister's response.

Lord Haskins: My Lords, I declare an interest as a trustee of the Lawes Agricultural Trust and I am delighted to be an east Yorkshire arable farmer in these trying times, when the banks still seem to be falling over themselves to lend me money.
	As the noble Lord, Lord Livsey, pointed out, investment in agricultural research was a high priority in the post-war years of shortage and low self-sufficiency. By the 1980s, in Europe at any rate, shortage had turned into excess. The need for such heavy commitment to research seemed to be less. The Government's view was that the private sector should take the place of the state, especially in near-market research. Even today, the European Union is largely self-sufficient in indigenous food—and we are members of the EU, as far as I know, and, therefore, share the benefits of the single market.
	However, the situation is different today in two respects. First, as the noble Baroness, Lady Shephard, pointed out, globally there is a greater risk of food shortage than there has been for years, given the rising population, affluence in the developing world and more people eating meat. Secondly, climate change will almost certainly exacerbate that situation. Without sufficient scientific and technological innovation, a Malthusian crisis could be created. Last year's hiccup of increased prices produced worrying signs of political unrest in Egypt, Indonesia and other developing countries.
	Much of the research that is needed will continue to be carried out by the private sector. It includes the need for more effective and safer pesticides in Europe, more productive plant breeding, and sophisticated technology, such as precision farming. However, Britain, the EU and other affluent Governments must concentrate on three aspects of state-funded agricultural research. First, they should make sure that existing science and technology become available to the poorer farmers of the world who cannot afford to buy them. That would make a huge change to the world's capacity to feed itself. Secondly, there should be investment in long-term research to mitigate the effects of climate change on agriculture, especially as it affects poorer farmers in countries such as Bangladesh, and British and European farmers who are coping with the impact of extreme weather on their crops. Thirdly, and above all, they should ensure that regulations and restraints do not inhibit responsible research and development. There will be a constant need to insist on higher standards of animal welfare and safer pesticides, and so there should be. However, there is no point in applying regulations that place European farmers at a serious competitive disadvantage against, especially, North American farmers. The proposed pesticides directive might just do that but, being a cynic, I detect a bit of traditional Armageddon forecasting from farmers and the agriscience companies.
	Governments must not allow themselves to respond to well-meaning but mistaken demands to outlaw responsible research into exciting developments, such as genetic modification in crops. They must manage the science but not deny it. At a time of severe crisis, with unprecedented demands on Governments to borrow heavily to revive the economy, it may be tempting for Ministers to slash research budgets in order to reduce public sector debt. However, long term, for Britain and the world, that would be a catastrophic mistake. The world will get over a credit crunch, however painful, but it will not get over a food crisis of Malthusian proportions.

The Duke of Montrose: My Lords, I declare an interest as a Scottish livestock farmer and a member of the National Farmers' Union of Scotland.
	Farming, in many aspects, has been through some pretty dire times recently and now it seems that the banking industry is quite keen on joining it. In spite of this, it seems that the drug that gets to most farmers in the end is the fact that, whatever you try to do, farming is always a challenge on a huge range of levels.
	As other noble Lords have mentioned, for many years after the Second World War and under the CAP the challenge was always to produce more. We are now entering a very different scene, where the great drive is for the efficient use of the minimum of inputs and the least effect on the environment. In practical, everyday terms, this is a seismic shift and will need research.
	The noble Lord, Lord Haskins, called for more applied research, and perhaps I may mention a small practical application in the world today. I note that Defra has allocated 0.2 per cent of its research budget to reducing the methane output of ruminants where this enteric fermentation accounts for 2.5 per cent of the country's greenhouse gas emissions. Can the Government reassure us that this is adequate? As the noble Lord, Lord Cameron, said, in world terms, agriculture will have to go on increasing production and, in order to combine both aims, all sorts of research will be needed.
	It is interesting to note that in the 2007 Comprehensive Spending Review it was expected that Defra's budget would have an average annual growth rate of 1.4 per cent over the five-year period. Of course, we are now in a very different economic situation, and no doubt the Minister will tell us of areas where the Government expect us to tighten our belts. However, within that review, the Government stated that they expected to be able to achieve an annual saving of £121 million through the increased sharing of responsibility for animal health and welfare with the agricultural industry. Some of this is taking place as we speak in areas such as the disposal of fallen stock and even in the bluetongue vaccination programme.
	The fulfilment of this proposal is dependent on the industry's ability and willingness to pay. There is a rather worrying precedent in the most recent extension of the bluetongue area in England, where the uptake of the vaccine has accounted for only a very small proportion of what is required. Much of the vaccine that has been prepared at government expense is sitting idly on the shelves of veterinary surgeries and at the suppliers. As a Scot, I can say that this does not give me great reassurance that the disease will not try to spread north of the border.
	A concern that I have recently come across is that the original figure for the industry's contribution is supposed to contain an element towards agricultural and food research. In our discussions tonight, this could be quite a critical factor, as the NFU tells me that the Defra budget for farming and food research and development is now only £20 million. Can the Minister say whether the department is still budgeting for a sizeable contribution from the industry for financing any of the core research facilities? I am sure that the Minister is as aware as anyone that, whatever happens, a certain number of our research facilities in the animal health field are absolutely key to our control of animal diseases—both those that we currently experience and the more exotic elements that seem to be migrating across the world. I need mention only avian flu as an illustration.
	Of course, much of the finance for these facilities is not wholly dependent on Defra, and a fairly sizeable amount comes from the Department for Business, Enterprise and Regulatory Reform through the BBSRC and other sources. In Scotland, we are extremely proud of our world-class scientific research. I was recently speaking to the chief executive of the Mordun Research Institute in Edinburgh. It has received approximately £6 million from government, which gives the institute its core funding. The chief executive has just come back from the US, where she has obtained additional funding from major chemical companies, which overall will give the institute a working budget for next year of £18 million. That must be good value for money in the context of the UK economy and the chance to maintain quality jobs in this country. Can the Minister assure the House that, in considering the finances to be made available, adequate emphasis will be placed on the vital asset that these research facilities represent?

Lord Tyler: My Lords, this is a very topical and timely debate. I want to concentrate specifically on one major strategic issue that has arisen in the speeches of all those who have taken part. Since the Thatcher era in the 1980s, when the Government decreed that most research led to commercial, profitable development with near-market results, the public sector has not had to take such a big role in that function. As a result, as the noble Earl, Lord Selborne, emphasised, in the following 25 years we have seen a considerable reduction in public investment for the public interest.
	I want to consider animal diseases in particular, as in the other House my area of responsibility was agriculture, food and the rural economy throughout the BSE and foot and mouth disasters. I shall refer specifically to the 2000 report from the Phillips inquiry into BSE because there are extremely important lessons to be learnt from it in the context of our debate. The inquiry concluded:
	"BSE has caused a harrowing fatal disease for humans ... A vital industry has been dealt a body blow, inflicting misery on tens of thousands for whom livestock farming is their way of life",
	and, of course, hundreds of millions of pounds were lost to the British economy as a result.
	The research identified in the Phillips inquiry—and the research that should have been and still needs to be undertaken—is of extreme importance. However, that research will not be undertaken if the lead comes from the private sector, for obvious reasons. I take one example. The Phillips inquiry came to the conclusion that,
	"the OP phosmet might modify the susceptibility of cells to the prion disease agent".
	The OP warble fly dressings used until the 1980s—which, incidentally, organic livestock farmers very carefully avoided, which is perhaps a good reason for supporting the organic sector—were clearly identified as needing further research. Since 2000, that research has never taken place.
	The critical paragraph from the inquiry reads as follows:
	"BSE did not emerge at a propitious time so far as research was concerned. In 1985 Ministers had accepted a recommendation from the Priorities Board for Research and Development in Agriculture and Food that expenditure on research into animal diseases was disproportionate and should be reduced by 20 per cent. Implementation of this policy was resulting in staffing cuts at research establishments".
	As Members of your Lordships' House have emphasised time and again this evening, that process started because the public sector was thought to be less important than the private and commercial sectors, which could benefit from near-market development. That, again, is a very important lesson that we must take to heart. The public sector has to take the lead in setting priorities in research.
	Last summer's Cabinet paper, Food Matters—Towards a Strategy for the 21st Century, on the whole seems to suggest that the nation does not think that food matters. I do not believe that is true; I think that the nation believes that research into food and farming issues is of extreme importance. As the NFU has reminded us, a 45 per cent reduction in investment in this research took place during the 1980s and 1990s and now—again as the NFU has told us—only £20 million is being spent in the Defra budget on those critical areas. As my noble friend Lord Livsey said earlier, given that £20 billion is paid to import food into this country, the disproportion is dramatic.
	I hope that the Minister will give us some reassurance about the announcement of the merger, to which reference has been made, to form the Food and Environment Research Agency from 1 April—not a propitious date. It will be meaningless if there is no increase in resources, no firm focus on what is in the public interest and, therefore, no firm focus on what should be a priority for public investment.

Lord Taylor of Holbeach: My Lords, I join other noble Lords in expressing gratitude to my noble friend Lord Selborne for securing this debate. I welcome his introduction of this important topic.
	I declare my interests, both formally and literally in this matter. I am, as many noble Lords may know, involved in my family farming and growing business. We are members of various organisations such as the NFU, have qualified under a multiplicity of crop assurance schemes, and are members of LEAF. In short, we would consider ourselves productive, progressive and dependent on science for success. Surely one outcome of this debate would be that the House would wish to see all British agriculture and horticulture so described.
	I have been much interested in research matters in the industry. In the past, I have served on governing bodies, ministerial panels and programme reviews and I was a founder member of the Horticultural Development Council, which is now part of the Agriculture and Horticulture Development Board. Over many years, my family has worked on projects with the soon-to-be-closed Kirton Horticultural Research Institute, joining the long list of those we have heard of during the debate. Things are not as they were and the Government need to revisit their priorities in this area.
	I will not be using my position on this Bench to call for more government spending. Spending commitments are not to be found here and, given the country's current woes and Defra's impecuniosity, it would be irresponsible to suggest any other line. However, the debate has shown that there is a pressing need to provide support through research and knowledge transfer to an industry that is in the front line of a fast changing world. As noble Lords have said, we need to face issues such as food security, energy from crops, pesticide bans, animal disease and climate change adaptation and we will not do this without proper research and development.
	I mentioned the Defra budget but real encouragement needs to be given to other departments to look at the potential in this area: DIUS, as the noble Lord, Lord Cameron, suggested; DfID and the need to develop crop science to assist the reduction of food shortages in the thirdworld, such as drought-resistant crops; DECC and the creation of second-generation biofuels; and the Department of Health and the breeding and development of foodstuffs improving health by, for example, producing wheat flour which is able to reduce the risk of rectal cancer. Within existing budgets there is much that can and must be done.
	I believe that partnership research can be a very useful way of leveraging government spending. How much are the Government committed to this? CAP pillar 2 allows for part of the European budget to be committed to research. How much have the Government committed under this heading and what percentage of that is currently food-production orientated? The Government have set up the Food and Environment Research Agency. As noble Lords have said, much hope rests on it. It will be vested in April, after a year in shadow operation. What will be the spend on agriculture and on food by the four bodies joined to form this organisation? Current budgetary pressures are immense—all the more reason for making sure that we address waste and inefficiency within the department.
	I end by mentioning the 2008 report of the National Horticultural Forum, which drew attention to the way in which reductions in applied research and technology transfer are impacting on an industry which provides for an important part of a healthy diet; namely, fruit and vegetables. The future of agriculture and horticulture is important. The success of farmers and growers in meeting what the nation requires will depend on the application of science. There must be better ways of making this work than at present.

Lord Hunt of Kings Heath: My Lords, it is a great pleasure to respond to this very interesting debate. It is remarkable that such a high-level debate can take place within an hour, even though contributors have had only four minutes to speak. As a result, we have much food for thought—if I can put it that way. I shall answer as many points as I can, but I also want to assure noble Lords that my department will take into account the comments that have been made, particularly as we go forward into the new arrangements on research. I am very grateful to the noble Earl for initiating the debate and also for what he said about the priorities that he thought should be developed.
	Of course I heard what the noble Earl said about the past contribution of research and development to agricultural production in this country going back over 40 or 50 years, a point made also by the noble Lord, Lord Livsey. He said that in the past few years agriculture has no longer been seen as a key sector. I thought that my right honourable friend the Secretary of State addressed that issue only a few weeks ago at the Oxford farming conference. Although my right honourable friend recognised in his speech many of the challenges facing farming, he also gave a very positive vision of the future role of farming in this country. I listened with interest to some of the comments made by parts of the farming sector following that conference.
	We all understand the real challenges facing farming at the moment, but I thought that there was a positive message about the critical role that farming has to play in the future. My department understands very well its importance and will promote it. Food security, in the context of climate change, growing world population and instability in many parts of the world, is a point very well taken. I will come back to the issue about R&D in relation to food security in a moment.
	Of course research and development lies at the heart of innovation in agriculture. It has never been more important. Climate change will affect production patterns, yields, incidence of pests and diseases, and produce an increased incidence of extreme weather events with the potential to disrupt markets and cause price volatility. We have heard from the noble Lord, Lord Livsey, on the question of bees; from several noble Lords about the need for research into GMOs independent of companies with a direct concern; and from the noble Duke, the Duke of Montrose, who asked a very pertinent question about what I merely describe as research into cows farting.
	There are many important areas where research and development need to take place. I know that noble Lords are concerned about the amount of money that my department spends on research and development. I do not want to go into huge detail about the amount that is spent. Overall, it is £353 million in research relevant to agriculture and food. The Biotechnology and Biological Sciences Research Council invests £185 million in fundamental science. My department spends £68 million. DfID is investing £400 million over the next five years on agricultural research in developing countries. The Food Standards Agency has a spend of £20 million on research underpinning food safety and healthy eating.
	I understand that noble Lords are concerned about the budgetary decisions that have been made. One has to face the fact that inevitably given the pressures on public sector expenditure, and exacerbated by the recent global turndown, the search for greater efficiency is ever-present. We also look to other sources of funding. Noble Lords have already mentioned the EU. There is the question of funding coming from industry—and various parts of industry at that.
	Of course we will continue to look very carefully at the budget and at its balance. Today's debate is very helpful to me and the department in making proper analysis of where that resource should be spent. I cannot stand here and say that I can promise to put more money into the budget. At the moment, that is very difficult, but we need to make sure that the resource that we have is spent as widely as possible.
	Food security is clearly critical, but one must distinguish between food security and self-sufficiency, although I thought that the noble Baroness, Lady Shephard, made a very good fist of describing the relationship in what she described as sustainable food production in this country. I assure noble Lords that the question of R&D is important; we are looking to invest more in that area. I understand that a cross-government research co-ordinating group has been set up, chaired by Professor John Beddington, the Government's Chief Scientific Adviser, to look into that very question. I take the point made by the noble Duke, the Duke of Montrose, about the uptake of vaccine and the need for us to be ever-alert to that especially important factor in relation to bluetongue.
	In dealing with R&D, our relationship with key scientific partners, such as key research councils, is very important. I say to the noble Baroness, Lady Byford, that we are in discussion with the BBSRC about how we can better co-ordinate our efforts. I assure her that we will continue to consider that very carefully.
	The noble Earl, Lord Selborne, the noble Lord, Lord Livsey, and other noble Lords referred to the issue of research institutes and the closures that have taken place. I understand those concerns. Some of those have been driven by the need for more multidisciplinary institutes. I know that the BBSRC has sought to maintain the ongoing sustainability of the UK agriculture research base by developing alliances through closer relationships between centres and between individual centres and universities. I know, however, that we need to keep a careful eye on that. As the noble Lord, Lord Cameron, said, we must ensure that the science base and skills base in this country is not undermined, so that we do not lose some of the key skills we have now.
	The noble Baroness, Lady Byford, talked about scientists retiring and whether they will be replaced. We have to keep that under very careful review, and we will do so.
	The noble Lord, Lord Cameron, made a very important point about extension services. I am told that one of the successes following the privatisation of ADAS has been the development of independent consultants and consultancy businesses. Consultants do not get much of a mention or many plaudits in your Lordships' House, but that seems to have been one of the positive outputs.
	The noble Lord, Lord Haskins, made some very important points about the industry contributing more. Of course the industry is a very important player. Private companies, such as large food companies and the agrochemical sector, have their own research activities. Funding from farming businesses is largely through the activities of the levy organisation, the Agriculture and Horticulture Development Board, which has a spend of around £20 million. I recognise the point that noble Lords have made about the small scale of many individual interests in the farming sector and the difficulty there of raising resources for research. That gives rise to the question whether other interests in the food chain, such as the food retail industry, contribute more at the applied end.
	The noble Earl, Lord Selborne, asked about the role of producers, the link programmes and the discussions in government at the moment with the Technology Strategy Board to see whether we can have better, more co-ordinated research in the sustainable food chain and whether we can attract more private sector investment. We certainly agree that partnership funding, which we currently support through the link programmes, are very important, but we are looking at how that could be developed and improved.
	I could respond to so many points, but I have only a minute left and will pick up other points in writing to noble Lords. Most of my ministerial experience has been in the Department of Health, where I had responsibility for research and development. I understand the critical importance of research and development. It is important not only to the farming and agricultural sector, even in the organic field, but to our relationship with the critical science base in this country. Defra's budget has been challenging, and I am afraid that I cannot bring good news of expected increases, but I can say that we recognise the important role of farming and the role of research and development. Noble Lords have cited many important challenges that we recognise we must face up to in research and development. We will continue our efforts to co-ordinate with other funders and the private sector to ensure that we produce as much resource as possible, that the value that is obtained from it is as effective as possible and that we continue to support farming in this way because of its importance to our nation.

Banking Bill

Bill Main Page
	Copy of the Bill
	Expanatory Notes
	Amendments
	DPCommittee: 1st Report

Committee (4th Day) (Continued)

Clause 93 : Grounds for applying
	Amendment 129
	 Moved by Baroness Noakes
	129: Clause 93, page 46, line 37, leave out "or" and insert "and"

Baroness Noakes: In moving Amendment 129, I will also speak to Amendments 130 and 131. These are probing amendments.
	We have at last progressed to Part 2 of the Bill, but I cannot yet say that the end is in sight. The amendments seek to alter Clauses 93 and 94, which set out the grounds for applying for and making a bank insolvency order. There are three grounds for applying for an order. They are set out in Clause 93(1): ground A, the inability to pay debts; ground B, the public interest; and ground C, fairness. They operate in a rather strange way, which is why I have tabled these probing amendments.
	If the Bank of England or the FSA applies for a bank insolvency order under Clause 93, it has to be satisfied that either ground A or ground C applies—that is, that there is an inability to pay or unfairness. Under Clause 94, the court has the same task of being satisfied on either ground. My amendments would change that so that both grounds must be applicable. I cannot see that the Bank or the FSA should go to the court simply on grounds of fairness or that the sole criteria for the court making an order should be fairness. That implies that, if the bank were able to pay its debts, some notion of fairness could still trigger a bank insolvency. I would be obliged if the Minister would explain that and, in particular—if this is not a mistake in the Bill—what the word "fairness" means in this context.
	In relation to Secretary of State applications under Clause 93(4), why does the Secretary of State have to satisfy himself only about ground B, on public interest? However, when that application gets to court, the court has to be satisfied about ground B, public interest, and ground C, fairness. Why are the Government not given the requirement to satisfy themselves on fairness before applying for an order? Doubtless, the Minister will see why I have been confused about how the grounds for applying for a bank insolvency order work. I beg to move.

Lord Davies of Oldham: I am grateful to the noble Baroness for welcoming the fact that we have moved on to the next part of the Bill. At one stage, I began to think that we might not make that this evening. I am pleased to reply to her amendment. Clause 94 sets out the powers of the court in relation to the submission of such an application, including the grounds on which the court may make a bank insolvency order.
	In keeping with the UK's existing insolvency legislation, an application for a bank insolvency order may be made where a bank is insolvent or where winding up its affairs would be in the public interest or fair. The noble Baroness asked me about the meaning of the word "fair" in this context. We assume that it has the same legal meaning as the phrase "just and equitable", which is used in insolvency legislation. In all the circumstances, it will then fall to the court to decide whether it is appropriate to make a bank insolvency order.
	Under Section 367 of the Financial Services and Markets Act 2000, the FSA may present a petition to wind up a bank and the court may make such an order if it is satisfied that either the bank is insolvent or that winding up would be just and equitable. It should also be noted that, under Section 359 of that Act, the FSA may apply to the court for the making of an administration order on the grounds that a company is or is likely to become unable to pay its debts. In many respects, Clauses 93 and 94 therefore preserve the current insolvency framework, with the addition that, given the important role of the Bank of England in the special resolution regime, the Bank may apply for winding up on the same grounds as the FSA.
	As I see it, the noble Baroness's amendments would diverge from the current position under insolvency legislation and the Financial Services and Markets Act and would mean that a bank could not be wound up on just and equitable grounds unless it was also insolvent. Similarly, the court would be able to make a bank insolvency order only where a bank was insolvent if it also considered that winding up would be fair. A key intention behind the bank insolvency procedure, which has received wide support among stakeholders, is to adhere as far as possible to existing insolvency legislation. We seek to maintain the existing grounds on which a bank may be put into insolvency; that is, an order may be sought and made on the grounds of insolvency or on the grounds that winding up would be just and equitable.
	I am sure that the Committee will agree that it would not be desirable to have an insolvency regime for banks that was more restrictive than that for companies generally, given the important public policy interest in protecting depositors and preserving financial stability. The only real change is the addition of the Bank of England into the framework. Otherwise, we are preserving the existing insolvency regime. That is the basis on which we hope the noble Baroness will feel able confidently to withdraw her amendment.

Baroness Noakes: I thank the Minister for that response. Perhaps I may check one point. Is he saying that the Government have decided not to use the phrase "just and equitable", which is used in insolvency powers generally—the Minister mentioned the Financial Services and Markets Act 2000, but it is used in the Insolvency Act 1986 as well—and to replace it with the word "fair"? Have they considered whether that is the right approach if they are trying to mirror what is in place in other legislation? The word may have the same meaning but, given that the phrase "just and equitable" has been considered by the courts in relation to regular insolvency, this may not be the right way forward. Whenever different language is used, lawyers generally think that something different is intended. That aspect is confusing. Is there anything that the Minister can say to help me on this?

Lord Davies of Oldham: As the noble Baroness will see, Clause 90(8) states:
	"The expression 'fair' is used in this Part as a shorter modern equivalent of the expression 'just and equitable'".
	We are not making a change of any significance and our use of the term "fair" is the same as the use of "just and equitable" in other legislation.

Baroness Noakes: Where did the Minister take that quotation from?

Lord Davies of Oldham: I quoted from subsection (8) of Clause 90.

Baroness Noakes: Where did the Minister take the quotation of the phrase "just and equitable" from? Where does it state in the Bill that "fair" equals "just and equitable"?

Lord Davies of Oldham: Clause 90(8) makes it clear that the use of the word "fair" in this part of the Bill is justified,
	"as a shorter modern equivalent of the expression 'just and equitable'".
	We do not intend to exclude the application of any judicial or other practice related to the construction or application of the expression.

Baroness Noakes: I beg the Minister's pardon; I had not seen subsection (8) of Clause 90. I shall consider the point carefully. I beg leave to withdraw the amendment.
	Amendment 129 withdrawn.
	Amendment 130 not moved.
	Clause 93 agreed.
	Clause 94 : Grounds for making
	Amendment 131 not moved.
	Clause 94 agreed.
	Clauses 95 and 96 agreed.
	Clause 97 : Liquidation committee
	Amendment 132
	 Moved by Baroness Noakes
	132: Clause 97, page 48, leave out line 39 and insert "As soon as practical—"

Baroness Noakes: I shall speak also to Amendments 133 and 134, which all concern the liquidation committee provisions set out in Clause 97. In a conventional insolvency, the liquidator has to call a meeting of the creditors as soon as possible and set up a creditors committee. That is the right thing to do because the actions of the liquidator can have a bearing on the amounts ultimately yielded for creditors. However, this process is not followed in the Bill.
	Under Clause 97, the liquidation committee, comprising the Bank of England, the Financial Services Authority and the Financial Services Compensation Scheme, is set up immediately. I do not challenge that point because it is clear that the payment of depositors could well be a priority in terms of timing, although I would add that I argued earlier in Committee that the transfer of banking facilities is of equal importance. However, the priority of giving depositors the ability to access their money should not be allowed to mask the fact that other creditors also have a real need to be involved in the liquidation process as early as possible. Under Clause 97, creditors do not show up on the scene until there has been a full payment resolution confirming that depositors have been substantially or fully paid out. My amendment would allow creditors to assume their natural place on the liquidation committee as early as possible, notwithstanding that the committee would initially be set up without them.
	The current clause has the Bank and FSA members stepping down to be replaced by creditors. Under my amendments, they would still step down once the full payment resolution had been passed, but until that point the committee would comprise a mixture of outside creditors, the Financial Services Compensation Scheme, which may be a large creditor, the FSA and the Bank. I see nothing wrong with that, but I wonder whether the Minister does. I do not understand why the regime has to be set up to exclude creditors until the Bank, the FSA and the Financial Services Compensation Scheme have decided that they have finished their task. Depending on the kind of bank involved, the outside creditors could be even larger in value terms than those dealt with under the need to pay out depositors.
	When the Minister replies, will he deal with a technical point in relation to subsection (6)(d), which provides that the FSCS may resign from the liquidation committee? Under subsection (2), the FSCS has never been a member—the member is only a person nominated by the FSCS. I have tidied that up in Amendment 134 but the Minister may like to reflect on whether the clause as it stands is correctly drafted. I beg to move.

Lord Davies of Oldham: An important part of this revolves around the crucial importance to the Bill of objective 1, as defined in the clause. At present the bank insolvency procedure sets out a two-stage liquidation committee process. Following the making of a bank insolvency order, representatives from the Bank of England, the FSA and the FSCS must form an initial liquidation committee. This committee will oversee the bank liquidator and assist in achieving objective 1 in Clause 96(2), which is to ensure either that the accounts of eligible depositors are transferred to another financial institution or that prompt compensation payments are made to those depositors.
	A key feature of the insolvency procedure is the emphasis that we are placing on dealing with eligible depositors quickly, allowing an initial liquidation committee to be formed immediately without the need for a creditors' meeting. This is crucial in achieving an early realisation of objective 1. Once objective 1 has been achieved, it is appropriate that, as in ordinary liquidation, it should fall to creditors to decide whether to form a liquidation committee. That is why Clause 97, in effect, provides for the initial liquidation committee to be disbanded once a full payment resolution has been passed.
	We move on to a second phase after objective 1 has been achieved. We consider that it would be inappropriate for a meeting of creditors to be called at an earlier stage to form a liquidation committee as the amendments suggest. This would cause procedural delays when the whole emphasis is on speed; it would take time to identify and notify creditors and to make appropriate meeting arrangements. We fear that this might undermine the achievement of objective 1, on which we place, as I have emphasised, such significance.
	Amendment 133 would work with Amendments 132 and 134 to allow for a liquidation committee to be made up of between three and five members, whereas the current wording of the clause refers to three or five. We are worried about four members in case there is an equal split in opinion. We have drafted the Bill deliberately to provide for an odd number of creditors on the liquidation committee—not in order to disadvantage creditors but to facilitate decision-making, as an odd number will avoid a 50:50 split and is more likely to avoid deadlock. That is the thinking behind that part of the clause.
	We are satisfied that Clause 97 as it stands strikes the right balance between protecting the interests of eligible depositors and those of creditors generally. It also provides for the necessary transition at an appropriate time between the initial liquidation committee and any subsequent committee formed by creditors. The clause may appear complicated in parts—it certainly does to me, although it is probably less complicated for the noble Baroness, who is so well versed in these matters—but it is necessary for us to prescribe exactly what should happen at an appropriate time in the unique circumstances of creditors forming a liquidation committee in a bank insolvency. That is why the clause is drafted as it is and why I hope that the noble Baroness will withdraw her amendment.
	The noble Baroness asked me about the FSCS resigning. The FSCS member may not be the original person nominated under Clause 97(2). Clause 98(6) is the relevant provision:
	"A nominating body ... may replace its nominee at any time".
	It is therefore proper for Clause 97(6)(d) to refer to the FSCS, which might be doing just that. I hope that the noble Baroness feels reassured by that response.

Baroness Noakes: I thank the Minister for the latter point; I shall look at it carefully. He described the liquidation as sequential, so that first the liquidator comes along, overseen by the Bank, the FSA and the FSCS, to achieve objective 1; and once that is done, objective 2 can be done. However, Clause 96(4) states:
	"Objective 1 takes precedence over Objective 2"—
	nobody is arguing about that—
	"(but the bank liquidator is obliged to begin working towards both objectives immediately upon appointment)".
	That must be right, but the creditors are not allowed in until objective 1 has substantially been dealt with. That seems potentially to disadvantage creditors. My amendments seek not to delay dealing with objective 1, which can be started immediately with a committee that is just the inner group, but to allow objective 2 to be set in motion. Everybody knows that you have to find out who are the creditors, write to them and call a meeting, and that takes a bit of time. The process could go on some time and the creditors could join at the first natural opportunity. The creditors are put to one side under the Bill's arrangements as if they have no interest in the early stages of the liquidation. But they clearly do, because objective 2 runs from day one of the liquidation. Can the Minister explain why the creditors have to be excluded, rather than admitting them into the process a little later once the formalities have been dealt with?

Lord Davies of Oldham: We do want not to inhibit the information flow to creditors or the setting up of a position whereby they will in due course play their part. However, the achievement of objective 1 is of prime importance. We think that that can best be realised by the limited participation identified in the clause. The basis of the thinking is the primacy of objective 1.

Baroness Noakes: I draw the Minister's attention to Clause 97(6). Although it states that,
	"the bank liquidator must summon a meeting of creditors",
	that does not start until there has been a full payment resolution. The process of getting creditors involved does not start even on the day when the full payment resolution is passed. They are kept out of the room not only until that is achieved; they are probably kept out for at least another couple of months. That does not seem the right approach to creditors in a bank liquidation. I remind the Minister that the creditors could have more money at stake than the depositors, who might be dealt with relatively straightforwardly.

Lord Davies of Oldham: We can all envisage that they might have more at stake; but the noble Baroness will accept the Government's reasoning behind the legislation and the primacy of the protection of depositors. We are hoping to deliver to depositors within a matter of days of the procedure being set up. It is fast because we want to deliver to depositors immediately. That is of the greatest importance. We all know how confidence ebbs away when depositors do not have access to their money. We expect that objective 1 will be reached within seven days. I am sure, therefore, that the noble Baroness will recognise that the next phase will not take months. It can be coterminous in terms of preparation. The creditors will be on the scene not in months' time but beyond the seven-day period when objective 1 is to be realised.

Lord Higgins: I hesitate to intervene but one does not like passing legislation when one simply does not understand what it means. Paragraph (e) of subsection (6) reads,
	"if no individuals are elected under paragraph (b), or the resulting committee would have fewer than 3 members or an even number of members, the liquidation committee ceases to exist at the end of the meeting".
	I am having trouble working out what combination of members would result in the committee not ceasing to exist at the end of the meeting. Why should it cease to exist with some combination of members and not with others, since presumably business has either finished or it has not?

Lord Stewartby: On the point raised by my noble friend, I am trying to work out what happens if the liquidation committee ceases to exist. Does the bank liquidator ignore this part of the clause about the liquidation committee and carry on regardless on his own?

Lord Davies of Oldham: I understand paragraph (e) of subsection (6) as being fairly clear. It refers to the criteria on the basis of the effective committee. We are saying that it should be three to five members, and that at least three or five members must be able to participate in order for it to have validity. We are insistent upon the odd numbers so that there should not be a point of irresolution when we are discussing a position of some urgency.

Lord Higgins: So if the committee has five members it continues, but with any other combination it ceases to exist. Is that right?

Lord Davies of Oldham: I am awfully sorry, but I did not quite catch that.

Lord Higgins: Is it the case that if there are five members, the committee continues to operate, but under any of the combinations mentioned in paragraph (e), it ceases to exist at the end of the meeting? I am not clear why sometimes the meeting continues and sometimes it does not.

Lord Davies of Oldham: We have views on the size of the committee and are indicating that we need either three members or five. I have explained the problem with four. If there are five members, but only three are available, that is the minimum number.

Baroness Noakes: Is this provision normal practice in liquidation committees under ordinary insolvency law?

Lord Davies of Oldham: We believe that it is, but if I am incorrect, I shall correct myself very rapidly.

Baroness Noakes: I thank the Minister for that. I continue to be mystified about why the Government want to keep the creditors out until they have achieved payment. The Minister said that it would take seven days—if it does, the creditors would not even have been notified and the meeting held, so that would not be a problem. My proposal was to involve the creditors simultaneously so that they could be involved once meetings had been held and they had been nominated, rather than excluded because the bank, the FSA and the Financial Services Compensation Scheme think that this is their toy and nobody else can play with it until they have finished. If this does not happen in seven days, and it takes a long time, for some reason, objective 2 cannot be properly overseen, and I am not sure that that is right. I will consider this between now and Report, and look forward to hearing from the Minister about normal insolvency liquidation committee practice. I beg leave to withdraw the amendment.
	Amendment 132 withdrawn.
	Amendments 133 and 134 not moved.
	Clause 97 agreed.
	Clause 98 : Liquidation committee: supplemental
	Amendment 135
	 Moved by Baroness Noakes
	135: Clause 98, page 49, line 35, leave out subsection (7)

Baroness Noakes: I can be brief with this amendment. Under subsection (7) of Clause 98, the FSA and the Bank of England retain attendance rights at the liquidation committee and other rights, even after their main task of paying out the depositors has been achieved. Since at that point the objective of the liquidation becomes the winding-up of the bank to achieve the best result for creditors, as set out in Clause 96, I cannot see what possible locus the FSA or the Bank of England could have. I do not like legislation which creates unnecessary or non-value-adding activities for public servants, so I look to the Minister to explain why the provision is necessary and/or value-adding to the process of liquidation and the achievement of objective 2 in Clause 96. I beg to move.

Lord Davies of Oldham: The provision which the noble Baroness questions gives the FSA and the Bank of England rights to take part in certain matters concerning a bank insolvency after they cease to be members of a liquidation committee; for example, to participate in legal proceedings and to attend and be heard at meetings of a liquidation committee formed by the bank's creditors.
	Clause 98(7) has been included to give the Financial Services Authority the same rights in a bank insolvency as it would have in ordinary insolvency proceedings, such as liquidation or administration involving firms authorised by the FSA. The subsection therefore mirrors existing provisions of the Financial Services and Markets Act 2000. They entitle the FSA, where an authorised person enters administration or liquidation on the application of a third party, to participate in court proceedings relating to the insolvency as well as certain other rights. These include, for example, an entitlement to receive copy documents or attend meetings of a liquidation or creditors committee.
	Since the bank insolvency procedure is part of the special resolution regime, and given the important role of the Bank of England in it, it is considered appropriate to give the Bank of England the same rights of participation as the FSA. Although the FSA and the Bank of England are obliged in a bank insolvency to stand down from the liquidation committee once objective 1 has been achieved, it seems sensible that, in keeping with the Financial Services and Markets Act 2000, the relevant authorities should be able to attend and be heard at future meetings. Of course, at that stage in the proceedings they will be able only to make representations, as any decisions will ultimately be made by the creditors sitting on the liquidation committee. They are not part of the decision-making process; it is a matter of copy documents and the right to attend. Similarly, Clause 98(7) gives the FSA and the Bank of England the right to participate in legal proceedings concerning a bank insolvency, but any judgments would of course lie with the court.
	It is not possible to set out all the circumstances in which the authorities might wish to exercise their rights under Clause 98(7), but the provision offers flexibility which is in keeping with existing legislation. That is why I hope that we can retain it and that the noble Baroness will withdraw her amendment.

Baroness Noakes: The Minister did not explain why the provision is necessary and he certainly did not explain what value-added was brought about by it, but he has trumped me with precedent in the Financial Services and Markets Act. I arrived in your Lordships' House just after that epic Bill had finished its progress here, so I am not quite word-perfect on the sections it contains. That sometimes comes back to haunt me. However, I accept what the Minister said and beg leave to withdraw the amendment.
	Amendment 135 withdrawn.
	Amendment 136
	 Moved by Lord Davies of Oldham
	136: Clause 98, page 50, line 4, at end insert "or under section 141(2) or 142(2) of the Insolvency Act 1986 (as applied by section 100 below)"

Lord Davies of Oldham: I shall speak also to government Amendment 137. The amendments add further detail to the Bill concerning the formation of a liquidation committee in a bank insolvency after the achievement of objective 1 as set out in Clause 96(2). They are minor technical amendments applying Sections 141 and 142 of the Insolvency Act 1986 to the Bill with necessary modifications. I beg to move.
	Amendment 136 agreed.
	Clause 98, as amended, agreed.
	Clause 99 agreed.
	Clause 100 : General powers, duties and effect
	Amendment 137
	 Moved by Lord Davies of Oldham
	137: Clause 100, page 52, line 22, at end insert—
	
		
			 "Section 141 Liquidation Committee (England and Wales) The application of section 141 is subject to— (a) sections 97, 98 and 106 of this Act, (b) rules under section 411 (as applied by section 122 of this Act) which may, in particular, adapt section 141 to reflect (i) the fact that the bank liquidator is appointed by the court and (ii) the possibility of calling creditors' meetings under other provisions, and (c) the omission of references to the official receiver. 
			 Section 142 Liquidation Committee (Scotland) The application of section 142 is subject to— (a) sections 97, 98 and 106 of this Act, (b) rules under section 411 (as applied by section 122 of this Act) which may, in particular, adapt section 142 to reflect (i) the fact that the bank liquidator is appointed by the court and (ii) the possibility of calling creditors' meetings under other provisions, and (c) the omission of references to the official receiver." 
		
	
	Amendment 137 agreed.
	Amendment 138
	 Moved by Lord Myners
	138: Clause 100, page 54, line 6, after "applied" insert "to a bank liquidator"

Lord Myners: Government amendments 138 and 139 work together and add further detail to the removal from office of a provisional bank liquidator. These amendments do not change the ways in which a bank liquidator can be removed, which are set out in the Bill. The table of applied provisions in Clause 100 details the provisions of the Insolvency Act 1986 applied to bank insolvency, with or without modification. This includes provision for the appointment of a provisional bank liquidator through the application, with modifications, of Section 135 of the 1986 Act.
	At present, provision is made for the appointment of a provisional bank liquidator to lapse on the appointment of a bank liquidator. These technical amendments apply further existing provisions of the Insolvency Act 1986 concerning the removal of a provisional bank liquidator. They provide that a provisional bank liquidator may be removed by an order of the court and also ensure that a provisional bank liquidator must vacate office if he or she is no longer qualified to act as an insolvency practitioner. These are tidying-up provisions which are consistent with existing insolvency legislation.
	Amendment 138 agreed.
	Amendment 139
	 Moved by Lord Myners
	139: Clause 100, page 54, line 7, at end insert—
	
		
			   "Section 172(1), (2) and (5) are applied to a provisional bank liquidator." 
		
	
	Amendment 139 agreed.
	Clause 100, as amended, agreed.
	Clauses 101 to 128 agreed.
	Clause 129 : Partnerships
	Debate on whether Clause 129 should stand part of the Bill.

Baroness Noakes: I have given notice that I oppose the clause standing part of the Bill, on a probing basis. For the convenience of the Committee I have grouped the debate with one on whether Clause 160 should stand part, as it is in similar terms.
	Clause 129 is an order-making power for the bank insolvency procedure to apply to partnerships. Clause 160 is in identical form for the bank administration procedure. I have one simple question for the Minister. Does this enable an order to cover limited liability partnerships? These are separate legal entities under the Limited Liability Partnerships Act 2000 and, therefore, not within the normal legal meaning of partnership any more.

Lord Myners: Clause 129 allows the Lord Chancellor, with the agreement of the Secretary of State and Lord Chief Justice, to modify the provisions of the bank insolvency procedure for banks that are partnerships rather than limited companies. Clause 160 replicates this provision for the bank administration procedure. I should add that Clauses 129 and 160 do not apply to Scottish partnerships, which have a different legal structure from English and Welsh partnerships and are provided for separately under Clauses 130 and 161. These provisions mirror Section 420 of the Insolvency Act 1986, which allow the Lord Chancellor, with the concurrence of the Secretary of State or the Lord Chief Justice, to make orders in relation to the law dealing with insolvent partnerships. Indeed, Clauses 129(2) and 160(2) make it clear that the procedure to be followed in relation to any order is the same as that set out in Section 420 of the 1986 Act. I was rather hoping that if any questions were asked in connection with the Insolvency Act 1986 I would be helped by the noble Lord, Lord James of Blackheath, who I acknowledged yesterday is almost certainly the world's leading expert on that particular legislation, but I see that he is not in his place, so I will soldier on.
	The primary reason for such an approach is that partnerships have different characteristics from limited companies and their own unique insolvency provisions. It may therefore be necessary to amend provisions of the bank insolvency procedure or the bank administration procedure for any banks that are set up as partnerships rather than as companies. In addition, setting out legislation for banks that are insolvent partnerships in a separate order will provide greater transparency for users of the legislation. As these clauses simply replicate the provisions of existing insolvency law in making legislation to deal with insolvent partnerships, Clauses 129 and 160 should stand part of the Bill.
	I should like to have the opportunity of writing to the noble Baroness in answer to her question on limited liability partnerships.

Baroness Noakes: I take it that the Minister does not know whether limited liability partnerships are included within Clauses 129 and 160 and I look forward to finding out the answer. They are often forgotten.

Lord Myners: The noble Baroness has established such a formidable reputation in my mind that I would not for one moment wish to give an answer were I not 100 per cent confident that I was correct. I have failed against that standard on several occasions in this Committee, but I aspire at all times to improve.
	Clause 129 agreed.
	Clauses 130 to 134 agreed
	Clause 135: Objective 1: supporting private sector purchaser or bridge bank.
	Amendment 140
	 Moved by Lord Myners
	140: Clause 135, page 69, line 18, after "supplemental" insert "or reverse"

Lord Myners: This group of government amendments contains three technical amendments to the provisions for the bank administration procedure. Amendment 140 ensures that objective 1 of the bank administration procedure—to support the private sector purchaser or bridge bank—includes a reference to reverse property transfers, as well as to supplemental property transfers. Reverse property transfers were introduced in Committee in the other place, and this amendment is consequential.
	Amendment 141 concerns the removal of a provisional bank administrator and is similar in effect to Amendment 139, which we have just debated in relation to the bank insolvency procedure.
	Amendment 142 adds some important additional provisions of the Insolvency Act 1986 concerning procedures for disclaiming onerous property and the powers of the court in relation to disclaimed property.
	Table 2 in Clause 142 applies to the bank administration procedure a large number of the provisions of the Insolvency Act 1986, including, with modifications, Section 135. This allows for the appointment by the court of an insolvency practitioner as provisional bank liquidator between the submission of a bank administration application and the making of a bank administration order.
	To provide consistency with the existing insolvency legislation, the amendment additionally applies certain provisions of Section 172 of the Insolvency Act 1986 which mean that a provisional bank liquidator can be removed by an order of the court and that a provisional bank administrator must vacate office if he or she ceases to be qualified to act as an insolvency practitioner. These are sensible provisions to adopt. Table 2 also applies, with modification, Section 178 of the Insolvency Act 1986 to the bank administration procedure.This gives a bank administrator the power to disclaim onerous property.
	To make sure that the power to disclaim onerous property can work in practice in the bank administration procedure and to allow others who may be affected by the issue of disclaimer to claim an interest in such property, Amendment 142 also applies, without modification, Sections 179 to 182 of the Insolvency Act 1986. These sections deal with important aspects relating to the power to disclaim onerous property and should have been applied at an earlier stage in the Bill but were regrettably overlooked. I ask noble Lords accept these minor and technical amendments.
	Amendment 140 agreed.
	Clause 135, as amended, agreed.
	Clauses 136 to 141 agreed.
	Clause 142 : General powers, duties and effect
	Amendments 141 and 142
	 Moved by Lord Myners
	141: Clause 142, page 77, line 49, at end insert—
	
		
			  "(h) Section 172(1), (2) and (5) apply to a provisional bank administrator." 
		
	
	142: Clause 142, page 78, line 31, at end insert—
	
		
			 "Section 179 Disclaimer of leaseholds  
			 Section 180 Land subject to rentcharge  
			 Section 181 Disclaimer: powers of court  
			 Section 182 Leaseholds"  
		
	
	Amendments 141 and 142 agreed.
	Clause 142, as amended, agreed.
	Clauses 143 to 148 agreed.
	Clause 149 : Property transfer from temporary public ownership
	Amendments 143 and 144
	 Moved by Lord Myners
	143: Clause 149, page 82, line 36, after "bank" insert "(or a bank's holding company)"
	144: Clause 149, page 82, line 38, after "bank" insert "(or from another bank which is or was in the same group as the bank)"
	Amendments 143 and 144 agreed.
	Clause 149, as amended, agreed.
	Clauses 150 to 164 agreed.
	Amendment 145
	 Moved by Lord Wedderburn of Charlton
	145: After Clause 164, insert the following new Clause—
	"164A Remuneration committee
	(1) The Treasury may by order (a "remuneration order") make provision concerning a remuneration committee in consequence of and in furtherance of this Part and of Part 1 of this Act.
	(2) An order under this section—
	(a) shall be made by statutory instrument, and
	(b) may not be made unless a draft has been laid before and approved by a resolution of each House of Parliament.
	(3) Before making a remuneration order, the Treasury shall consult—
	(a) the FSA, and
	(b) the Bank of England.
	(4) A remuneration order may amend or modify the effect of an enactment passed before the commencement of this Act.
	(5) A remuneration order shall enable the Treasury to appoint a person (with his consent) to sit as a full member of the remuneration committee of a bank, notwithstanding any provision in its constitution.
	(6) Any person appointed under this section shall enjoy the immunity of an agent under section 234(2)(a) of this Act, save for the general duties of a director under Chapters 2 and 3 of Part 10 of the Companies Act 2006.
	(7) In this section, "remuneration committee" means—
	(a) in the case of a quoted company, any committee or body which prepares or drafts a remuneration report under sections 420 and 421 of the Companies Act 2006 (duty to prepare, and contents of, directors' remuneration report) intended to be presented to the shareholders' meeting as the directors' remuneration report under section 439 of that Act (quoted companies: members' approval of directors' remuneration report);
	(b) in the case of an unquoted bank, any committee or other body which prepares such similar information and material regarding remuneration as shall be specified by the order;
	(c) in the absence of any such committee or body, the board of directors itself."

Lord Wedderburn of Charlton: I have been advised that it is procedurally proper for me to move the amendment even though my noble friend Lady Turner spoke most persuasively to it in moving Amendment 38, as did my noble friend Lord Borrie and, with some qualification, the noble Lord, Lord Newby, who adverted to it favourably. Indeed, the Minister said that he spoke against it with some qualification, and even mentioned that other members of the Front Bench were not unfavourably disposed towards it. I add—without breaching the normal conventions of the Committee—that Members of the House of Lords on all sides have mentioned to me how favourably they see the merits of the amendment, which would give the Treasury the power to appoint a person to the remuneration committee which normally provides the proposals for remuneration, in the broadest sense, of directors of banks and companies.
	The history of this matter was not adverted to during previous discussion on the amendment, when I was unable to be in Committee for medical reasons. We are not discussing cardboard figures. We are discussing directors and top executives, who have the genes of their predecessors, because of the errors that were made in irresponsible business models, and the outlook and behaviour that has been so scandalous in the continual rise of top executives' pay in companies and banks throughout the system.
	When I wrote on this matter in 2003, I was amazed to find the multiples by which directors' pay had exceeded the pay of others employed by banks and other companies. That fact deserves to be mentioned in the Bill. It is a Bill about banks, but banks do not do anything; bankers do things. Banks are an abstraction. If nothing is said in the Bill about the way in which the remuneration of top executives has exceeded the most depressed feelings of commentators, it will be noticed by those who look to this House and the other place to defend their interests. The matter has been mentioned in the most authoritative textbook on company law, by Professor Gower, edited by Mr Davies. It states that the remuneration committees represent,
	"a classic case where the risk of mutual backscratching arises: directors may not scrutinise too closely the remuneration of a fellow director in the expectation of similar treatment when their cases are considered".
	The key to that is that directors sit as non-executive directors on a multiplicity of companies, which gives rise to that phenomenon. It is no answer to the simple proposition I mentioned to invoke the plea that my noble friend Lady Ford invoked on the previous occasion at col. 1270 of Hansard, when she said that she refused to recognise the description of the noble Lord, Lord Newby, of the "charmed circle" that constitutes the membership of these committees being the basic reason for the phenomenon. Unless something is said in the Bill, it will be presumed that this House and another place do not care about that phenomenon, and that a Banking Bill can be put through without bothering about that history.
	The Minister said that he thought it was not necessary to add anything to the Bill to bring about the result I am discussing. My noble friend Lord Borrie, who supported the amendment, said that it was a "modest" amendment in the context of what had happened. The noble Lord, Lord Newby, said that there was a "general problem" of directors paying themselves excessively, even when the relevant enterprise underperformed. He is right. Therefore, I ask the Minister to accept that some noble Lords on the Front Bench were right to agree that this amendment is needed. The Bill needs to say something explicit about the phenomenon and what is to be done about it. If there is no intervention of the public interest voice in remuneration committee proposals, there is no way—this has been shown clearly—of preventing this phenomenon building and feeding upon itself and entering the same old spiral next time round. My noble friend Lord Borrie said that it was a most modest amendment in the light of the scandalous behaviour that had taken place.
	The aim of my noble friends in government—in the face of what might be called industrial action by bankers in not lending even to one another in an excess of modesty and not lending to enterprises of small, medium and even large business, when that is the normal function of banking—must be to point out that the record in the rapacious activity of top executives of banks and of other companies is such that the Bill must explicitly make a point of pointing the way to prevention rather than cure. Once the remuneration committee has proposed the requirements which in the Companies Act are required for a quoted company—the amendment would apply whether or not a company was quoted—it is impossible for anyone to intervene to prevent the spiral getting started again. Even in quoted companies, the shareholder's vote is merely advisory. I formally move Amendment 145, in the hope that the Minister can give us some more beneficial advice on the matter.

Baroness Turner of Camden: I put my name to the amendment, although I referred to it in speaking to the paving amendment on the previous occasion. My noble friend Lord Wedderburn drafted the amendment and was anxious to be able to speak to it.
	These are not ordinary times; we are facing possible disaster. I speak as an ordinary depositor and, as such, I really am afraid. The media stories scare me; I want the protection of the Government. For that reason, I support the Bill. Many people feel as I do; one has only to read the correspondence in newspapers to see the sort of comments that people are making: "What should I do? Should I take out all my money? Should I leave it under the mattress?", and so on. It is essential that confidence be restored, and I support what the Government are doing, but public money should mean public accountability, as I said on a previous occasion.
	The amendment, which is a reasonable one and which is very modest, as my noble friend said, endeavours to meet the criticisms that have been made from time to time about the very large sums that have been paid to senior executives, sometimes in situations where they are responsible for the decisions that have landed us in the problems that we now face. A number of people are going to be hurt by this crisis, including the depositors whose interests will be diminished, down to zero possibly. They will lose money that they had been saving for their retirement and they will not be able to replace it. Then there are employees who will become unemployed.
	In those circumstances, it is not reasonable for people to be seen to be walking away with very large sums of money. The amendment is modest, and I hope that the Government will be prepared to consider it, in view of the explanation that has been given by my noble friend in support of it.

Lord Higgins: I do not think that there can be any doubt that there is very widespread public concern about the way in which many of those who have been responsible, on bank boards and elsewhere, for the situation in which we now find ourselves have been in receipt of very great remuneration indeed. The amendment proposed by the noble Lord, Lord Wedderburn, reflects the public concern that is felt outside.
	I suppose when the history of this period is written, there will be analysis of how this situation came about. I do not think that there can be any doubt that, in particular, institutional shareholders have perhaps not exercised as much influence as they may, particularly in pension funds and others. The situation has been largely uncontrolled, for the reason that the noble Lord mentioned, particularly with regard to interlocking directorships and so on.
	This seems to be an appropriate amendment for us to consider, but, as the noble Lord has said, it is very modest, given that it only proposes the appointment of a director on the remuneration committee. That would certainly not give that person a decisive voice in any sense, although it may be influential. It is not at all clear what would happen if, having made his views known to the effect that remuneration might be excessive, his advice was ignored. None the less, the amendment is a step in the right direction and the noble Lord is right to say that, while the vast bulk of the Bill is concerned with highly technical and extremely important issues, it would be wrong for this aspect of the matter not to be considered.

Lord Wedderburn of Charlton: Perhaps I may ask the noble Lord whether he realises how much I value his experienced view on this extraordinary phenomenon in our social life and how right he is that a public voice on the remuneration committee would not be the same as a veto. Nevertheless, a public voice speaking in the public interest on the remuneration committee would draw to the public's attention the way in which a company's organs decide on the matter and would do a great deal to enhance the confidence of people who, without such an expressive amendment, would not have the confidence that my noble friends on the Front Bench and I would want the public to have in our Labour Government, which is the only Administration likely to deal at all with this problem.

Lord Newby: I do not intend to repeat the speech that I made before, but the big issue that the amendment raises about excessive remuneration is not confined to any bank that might virtually collapse and be brought into this regime. It is a common problem. The big issue that is being discussed in the City by a number of investor bodies is how shareholder power can be brought to bear against boards that make excessive payments. We had an early example of this a few days ago with Bellway, when a resolution was passed at the AGM voting down remuneration packages. Whatever you do in terms of the occasional bank that may come under the ambit of the Bill, the key thing is to bear down on excessive remuneration across the board. We are beginning to see a shareholder revolt. That will be the only way in which there will be more sensible levels of remuneration among the spread of businesses across the sectors.

Lord Stewartby: I am certainly not unsympathetic to the concerns that lie behind the amendment. However, without trying to scotch the amendment in any sense, I point out that this is an exceedingly difficult process to provide for by statute. An amendment such as this would not function along the lines that its sponsors would like to see. As has been pointed out, there can be some public interest appointment to a remuneration committee but, if there is no statutory back-up to what that person does or how the remuneration committee acts in the light of the contribution from that source, the chances of the amendment being converted into the sort of action that its sponsors would like to see are not very great. I do not say that in a negative sense at all. I say it merely to point out that, in terms of corporate governance and process, it is an immensely complicated business to provide the sort of outcome that is sought. However, I would not wish to discourage people from working at it and, in either this or another context, coming up with something that is a little more likely to be effective in practice.

Lord Myners: I am very pleased to see that my noble friend's health has improved and that he is here to speak to his amendment. He has no doubt read Hansard. I think that he would have greatly enjoyed the discussion that we had last Wednesday. It was lively and well informed, and it reflected a sincere interest in the subject, as well as some relief from the tedium and detail of other parts of the Bill.
	I do not intend to deal with this matter in great detail now, as time is pressing and the arguments have already been presented to the Committee. A number of noble Lords spoke to the amendment in our earlier session, raising important points about a range of issues, including the role of non-executive directors and other matters.
	I made three points in response to my noble friend Lady Turner and I shall set them out again briefly for the record. First, where the temporary public ownership or bridge bank tool has been used, the Government already have substantial powers in the Bill over executive remuneration. It is therefore not necessary to have an explicit provision in the Bill empowering the Treasury to appoint to a remuneration or similar committee.
	Secondly, where a bank is privately owned, remuneration is a matter for the bank itself; I shall return to that in a moment. Generally speaking, pay for directors and employees must be a matter for the banks in question, as it is for any company. This applies where the private sector purchaser/stabilisation option has been used. I should add that, as the regulator, the FSA has said that it will take remuneration structures into account in its risk assessments of financial institutions with, to quote its words, "increased intensity". I commend and support that decision by the FSA.
	Thirdly, where a bank is in receipt of considerable public funds, these come with conditions attached, including over executive remuneration. The banks that are participating in the recapitalisation scheme have agreed to restricted remuneration for senior executives both for 2008, for which the Government expect no cash bonuses to be paid to board members, and for remuneration policy going forward. The statement on the Government's asset protection scheme, which the Chancellor of the Exchequer published yesterday, makes it clear that conditions will apply to the scheme, including in relation to remuneration policy.
	My noble friend alerts the Committee to important concerns about executive remuneration. There is no obvious reason why the remuneration of the highest paid appears to have grown at such a fast rate compared with that of other people in corporations. It is not evident that there has been either a diminution of talent, which would be seen as a supply constraint, or an increase in demand. Therefore, it is right that the scepticism expressed by my noble friend about the processes by which decisions are made should be expressed in the pursuit of understanding. There is a risk that, to some extent, we have ownerless corporations in which decisions about remuneration are made in a vacuum because of the failure of the owners or their fiduciaries, the institutional investors, fully and properly to engage on issues of remuneration.
	I have spoken on this subject in other venues. I have engaged with institutional investors and put the challenge to them that the very difficult situation that our banks are experiencing, along with banks elsewhere in the world, must raise some questions about the responsibilities of the owners. I ask my noble friends Lord Wedderburn and Lady Turner of Camden to draw some strength from the fact that views are being expressed in the Committee that are consistent with the anxieties that lie at the heart of the amendment. However, I do not think that this Bill is the right place to pursue this matter.
	My noble friend Lady Turner said that she was scared. I would like to reassure her that, as a retail depositor with a British bank, she can, I believe, feel secure that our commitment to maintain the stability of the British banking system means that her anxiety should not trouble her greatly. The actions that we have taken are designed precisely to ensure confidence in the stability of the banking system and to ensure that retail depositors do not feel scared. I urge the noble Lord to withdraw his amendment.

Lord Wedderburn of Charlton: I am grateful to those who have spoken to the amendment and I am grateful to the Minister. One thing that my research in the area of company law, which includes banks, has shown since I began it in 1958 is that the owners, as the Minister calls them, are quite incapable of adequately restraining the demands of top executives in our banking and company structures. That has to be approached by adequate regulation. The one area that the Government and others have always refused to put within regulation is the pay and remuneration of those responsible for many of the irresponsible business models that have brought us to the crisis alluded to by my noble friend Lady Turner of Camden.
	It is quite wrong to say that this Bill is not the place to bring up the problem. This Bill is the place because it is the Bill that is before the House and it is the Bill that is in the public mind. The public, who affect the figures of the opinion polls, will be the first to notice if no explicit mention is made in the Bill of the problem that they know exists and which they know has been part of the problem: people granting to themselves particular rewards for inexplicably absurd and irresponsible behaviour. If my noble friends on the Front Bench and my right honourable and honourable friends in another place want the opinion polls to respond well to this legislation and other legislation like it, they have to put a clause into the Bill explicitly to deal with the problem. I am grateful to the Minister for what he has said about the merits of the amendment and its objectives, but I hope that he will respond more favourably on Report than he has in Committee.
	Amendment 145 withdrawn.
	Clause 165 agreed.
	Amendments 146 to 156 not moved.
	Clause 166 agreed.
	Amendment 157 had been withdrawn from the Marshalled List.
	Amendment 158
	 Moved by Baroness Noakes
	158: Before Clause 167, insert the following new Clause—
	"Compensation limits
	After section 213 of the Financial Services and Markets Act 2000 (compensation scheme) insert—
	"213B Compensation payable to depositors
	(1) Each depositor will be entitled to receive from the scheme manager in respect of each bank brand a sum which is the lower of—
	(a) the deposit protection amount; and
	(b) their gross balance held by the person.
	(2) The "deposit protection amount" is £50,000.
	(3) The Treasury may by order amend the figure in subsection (2).
	(4) The Treasury may by order either in general or specifically determine what constitutes a bank brand.
	(5) An order under this section may not be made unless a draft statutory instrument containing such an order has been laid before, and approved by a resolution of, each House of Parliament.""

Baroness Noakes: We are making phenomenal progress. We have now reached Part 4, which concerns the Financial Services Compensation Scheme. We have several topics to debate, although perhaps not all this evening.
	Amendment 158 would insert a new clause before Clause 167. The new clause would set out in statute what compensation should be paid to depositors under the deposit protection scheme. There are two elements to the proposed new clause. First, it sets out that the compensation limit is to be increased to £50,000 and that the amount may be amended by the Treasury by order. At present, the power to set the compensation limit is set by the FSA. During autumn 2007, the FSA was slow to respond to calls, notably from my party, to increase the compensation limit to £50,000. There are of course arguments for increasing it even further, given that there is a substantial minority of private depositors who account for a disproportionate amount of total deposits, although I will stick with the current limit of £50,000, on which there is some agreement.
	The Minister may say that the FSA can do it, so why should we put it in the Bill? I have a simple answer to that. The decision to increase the limit is as much political as technical, as the events of the past 18 months have shown. A political decision should be made by the Government and put to Parliament for approval. It was wrong that Parliament was completely on the sidelines in that debate and that the Government were not in the driving seat, if I may mix my metaphors. Although the FSA can currently do it, that is the wrong location for the power, as recent history has shown.
	The second and important element of my amendment relates to deposits being calculated on a bank brand basis. At present, the Financial Services Compensation Scheme relates only to legal entities, so if a depositor holds a deposit in more than one bank in a group, his compensation limit is restricted to the one limit of £50,000. A depositor who investigates the legal ownership of banks can work out that he needs to spread his money around to avoid legal groupings, but many investors are not that sophisticated. Recent events, such as Lloyds TSB and HBOS, Bradford & Bingley and Abbey/Santander have restricted the number of legal groups, although not the number of brands.
	Consumer groups, led by Citizens Advice and Which?, are firm in their view that the scheme should operate on a brand basis. I hope that the Minister can agree. I should say that my amendment would probably need further refinement to be clear what is meant by a "bank brand", so for the purposes of today's debate my amendment is probing, but I hope that the Minister will respond positively so that we can at least deal with this aspect when we come back on Report. I beg to move.

Lord Newby: I am grateful to the noble Baroness for tabling the amendment because it covers in part issues that we proposed to raise in debate on Clause 171 stand part. There was a question about where to put our focus in dealing with the compensation scheme. We should perhaps have grouped our amendment with this one.
	I agree with several aspects of the amendment. First, I absolutely agree with the noble Baroness that this should be a matter not for the FSA but for Parliament. The FSA was dilatory beyond measure in increasing the limit to £50,000. It seemed that the Treasury either could not or would not exercise much influence on it to do that. We also agree with the principle that the £50,000 should apply to a brand. Given that there is such a concentration of ownership now and so many brands, I wonder how many people realise exactly which brand is owned by which bank.
	The FSA's view on compensating by brand is slightly odd in that it seems to accept the principle of doing this, but claims that amendments to the deposit guarantee schemes directive mean that a fully harmonised approach to the level of coverage is likely to be imposed across the EU, which would rule out such a change. It goes on to say that it will return to the topic should there by any changes to the EU legislative framework. We are rather surprised by this, because the directive simply requires the European Commission to report on harmonisation by the end of this year. No proposals have been made, and the consultation on the matter has yet to be published. The FSA needs at this point simply to get on with it, stand up for UK consumers, make the necessary changes now, and then lobby for them to be allowed under any new rules that may emerge from the EU in the future.
	Two other issues arise from the compensation scheme, which I wanted to refer to in the Clause 171 stand part debate. I suggest that, given the lateness of the hour, I will do so at that point.

Lord Myners: Part 4 makes a number of changes to Part XV of the Financial Services and Markets Act 2000, which provides the legal framework for the Financial Services Compensation Scheme. That framework also allows the Financial Services Authority to deal, in its rules, with most features of the compensation scheme.
	As described by the noble Baroness, the amendment would put the headline compensation limit into the Financial Services and Markets Act 2000 on a per brand basis and would allow that limit to be changed by the Treasury in an order made under the affirmative procedure. It would also allow the Treasury to define by order what constituted a bank brand. The FSA's rules can already deal with these matters. Indeed, the FSA has recently published a consultation paper, which discusses, among other matters, paying compensation on a per authorised entity or a per trading-name basis.
	The effect of the amendment would not be desirable. The FSA rule-making procedures are better suited for making such changes. As was demonstrated in September 2007 and October 2008, FSA rule-making procedures need not be a barrier to making rapid changes to the Financial Services Compensation Scheme rules, which the affirmative procedure clearly would be. It is also worth recalling that the Financial Services Compensation Scheme is also responsible for compensating insurance policyholders and customers of investment firms when these businesses are in default and unable to pay claims. It would be rather inappropriate simply to put matters relating to deposit-taking in the primary legislation.
	When the FSA announced an increase in the deposit compensation limit last October, it also launched a consultation exercise on the compensation limits in other areas, so there is real merit in allowing the FSA to follow a consistent and co-ordinated approach across a broad range of financial products. That is particularly important, given the essential mutualisation that lies behind the funding of this scheme.
	Part 4 therefore covers only the matters that cannot be dealt with under the existing provisions in the Financial Services and Markets Act. The changes in this part therefore need to be considered alongside other changes that are proposed for the scheme. As I said, the FSA is consulting on changes that can be made under the FSMA. As well as further discussion about providing protection by trading name or brand, the consultation includes discussion of the proposals for a move to gross compensation payment, proposals for simplifying eligibility criteria proposals for placing information requirements on firms to ensure that there can be a single customer view, and proposals for improving consumer awareness.
	Last October, as well as raising the headline limit for deposit compensation to £50,000, the FSA announced consultation on dealing with temporary high balances, on changes to the way in which recoveries from a failed firm are calculated, and on the compensation limits for other types of investment. Part 4 should be, and is, limited to making those changes to the overall framework in which the Financial Services Compensation Scheme operates that only primary legislation can do.
	Members of the Committee should rest assured that there is plenty more going on at the right levels to improve the arrangements for depositor protection in the UK. It would be neither sensible nor desirable to cherry-pick certain items and highlight them in the way proposed. I therefore ask the noble Baroness to withdraw the amendment, and, if it is pushed to a vote, I ask your Lordships to reject it.

Baroness Noakes: The Minister will not be aware that he is entering my favourite time of night for seeking the opinion of the Committee, but I want to put his mind at rest that I shall not be doing so tonight. He has resisted our perfectly reasonable amendments, which were based on the premise that these are political issues which should be in the hands of Parliament and not within the hands of the FSA. I do not think he has really answered that point. In fact, he said that the affirmative procedure would be a barrier. I do not think that the Government of the day have ever found the affirmative procedure to be a significant barrier.
	The other points he raised were about other matters and not about the deposit protection scheme. But it is the deposit protection scheme about which there is so much interest. I do not have any fundamental problems with leaving the FSA to deal with those aspects of the compensation scheme that are not about deposit protection. But, in the public mind, as we have known over the past year and a half, deposit protection is extremely important and hugely confusing to people, as we first found out around the original definition of partial loss sharing and the lower limit.
	I do not think that the Minister has answered our points on this issue and I think that we will want to return to it in some form on Report. This probably goes to the heart of one of the most important areas of how the Financial Services Compensation Scheme will work for people, which is an issue for Parliament to determine. I beg leave to withdraw the amendment.
	Amendment 158 withdrawn.
	Amendment 158A had been withdrawn from the Marshalled List.
	Clause 167 : Contingency funding
	Amendment 158B
	 Moved by Baroness Noakes
	158B: Clause 167, page 88, line 28, leave out from first "the" to end of line 29 and insert "contributions payable by banks and building societies"

Baroness Noakes: In moving Amendment 158B, I shall speak also to Amendments 158C, 158D and 162B. The first three of these amendments amend Clause 167 and the last amends Clause 170. These arrangements ensure that the contingency funding arrangements for the Financial Services Compensation Scheme are confined to banks and building societies. As the Minister has just said in response to the previous amendment, the compensation scheme covers many other kinds of financial service provider. Those which are not banks and buildings societies are extremely concerned to ensure that they do not get called on to pay compensation in respect of failed banks and building societies. They are extremely concerned about having to pick up part of the tab from the current slew of compensation being processed through the Financial Services Compensation Scheme. They are doubly concerned at the possibility that they might have to pay in advance of any compensation payments in order to the allow the FSCS to build up a contingency fund.
	This is a position of basic equity as between different financial products and service providers. The costs of the Financial Services Compensation Scheme are inevitably borne, ultimately, by customers, but they might initially be paid for by service providers. What is the justification for requiring the customers of, say, insurance or investment management products to bear the costs of bank failure? It goes without saying that the ABI and the IMA have concerns with this, as do other groups of financial service provider which are within the net of the Financial Services Compensation Scheme. I beg to move.

Lord Davies of Oldham: As the Committee will be aware, the principal function of the FSCS is to pay compensation to eligible complainants if financial services firms are in default and unable to meet claims. The Banking Bill will also allow the scheme to contribute to the costs of the special resolution regime, which we will debate later. But to do these things, funds are needed, and it is clear that under the current pay-as-you-go model of the FSCS, if a very large firm went into default—say a bank or building society—the scheme could not realistically levy sufficient moneys from the industry or raise funds by borrowing in the ordinary way from commercial sources. Two solutions have been put forward for the problem: borrowing money from the Government to be paid back through future levy payments, or building up funds in advance.
	The FSCS is already able to borrow from the Government, and as I shall describe later, the Bill makes provision to make government borrowing administratively more efficient. However, Clause 167 allows for the second of the solutions, the setting up of contingency funds in advance of need, through a process commonly known as pre-funding. That is the issue before us. The Government know that now is not the right time to introduce pre-funding. My noble friend Lord Myners at Second Reading, my right honourable friend the Chancellor of the Exchequer at Second Reading in the other place, and my honourable friend the Economic Secretary to the Treasury at every stage of the Bill in the other place, have all made it quite clear that we do not propose to introduce pre-funding at this time.
	Amendments 158B and 158C would ensure that levies to build up contingency funds could be collected only from banks and building societies, and in combination with Amendment 159D, which as the noble Baroness has explained is intended to prevent cross-subsidisation within the FSCS, the overall effect would be that contingency funds built up through pre-funding could be used only to meet the expenses arising from the failure of banks and building societies. A further effect of Amendment 159D might be that there would have to be separate contingency funds for banks and for building societies. This looks inflexible to us and is therefore unnecessary and undesirable. The Bill already allows for different funds to be established for different purposes, and for different persons to contribute to the different funds. We place great emphasis on this flexibility and we have no intention of bringing forward pre-funding in the near future. The time is clearly not right, nor would it be appropriate to speculate on when it would be right. We do not know what changes the future may bring and therefore we need flexibility.
	In the future, the nature and structure of the financial services industry may be completely different, and we have all become accustomed to rapid change in this sector. We should not tie down our options in primary legislation which may become outdated in two, five or 10 years' time. Future problems, should they arise, may be confined to banks and building societies, but equally they may not. As I have said, Clause 167 already allows for the creation of more than one fund. It is therefore possible to bring in contingency funds for one type of financial services firm built up with levies raised from that type of firm and not for other types. There could be separate funds for banks and building societies, but I do not see why we should set out to prejudge the issue now.
	The Bill confers a flexible power to bring in pre-funding at the right time and in the right way. This flexibility would be exercised subject to full parliamentary scrutiny. The necessary statutory instruments will have to be laid in draft and debated in both Houses before they are made. There would be consultation beforehand involving the Bank of England, the Financial Services Authority, the Financial Services Compensation Scheme and the industries concerned before any such regulations were drafted.
	I turn now to Amendment 162B. Clause 170 allows the public sector to make loans to the FSCS in what is administratively the most efficient way, by making loans from the National Loans Fund. The amendment would have the effect of restricting those firms which could be called on to contribute towards the cost of repaying loans from the National Loans Fund to banks and building societies. However, any type of firm could be in default, and loans from the National Loans Fund might be needed to finance the compensation payable. Flexibility is also important in this area and we should not tie our hands too much when we cannot anticipate what future circumstances might arise.
	I hope, therefore, that the noble Baroness will accept that the Government have drafted the clause on the basis of the necessary flexibility and that she will not press the amendment.

Baroness Noakes: I thank the Minister for his response to the amendments. I will not get into whether or not the affirmative procedure is the best way of scrutinising a contingency funding arrangement if one is ever introduced. Let me just say for the time being that we do not think that it is.
	This is a banking Bill that is being introduced in response to what has happened in banking. It is not an opportunity for the Government to completely rewrite the Financial Services Compensation Scheme, which is what they are doing. In so doing, under the guise of flexibility, they are exposing all kinds of financial services providers to the risk that the way in which pre-funding is introduced will operate adversely to them. That is what they are concerned about and they do not see why any of these changes should affect them. A case has not been made for pre-funding for insurance or even for banking, as has been strongly put forward by a number of individual and collective players in the banking industry. We know that the FSA and the Bank of England want to do this because they are on record as saying so. For the Minister to say that this is not the right time is disingenuous because we know that those parties will be waiting for the first lull in which to get it introduced.
	But we can debate that later. For these purposes, if it is going to be introduced, it should be introduced for banks and building societies because that is where the problem that has led to this Bill has come from and not anything else. The Minister said at one stage that the problem with one of my amendments is that the banks and building societies might be treated separately. Perhaps they should be treated separately as the risk profile of banks and building societies is inevitably quite different given the different funding powers that they have, for example.
	We will not get much further on the amendment tonight. I shall leave it by saying that I am wholly unconvinced by what the Minister has said in connection with this clause. We have a long way to go in our debates in Committee on the Financial Services Compensation Scheme and contingency funding, in particular, and I shall save further comments for later groups of amendments. I beg leave to withdraw the amendment.
	Amendment 158B withdrawn.
	House resumed.

House adjourned at 10.03 pm.